Why do contractors need insurance?
Contract compliance
While contractors' liability insurance isn’t required by law, professional indemnity and/or public liability insurance can be standard requirements for contractors working in the UK.
Accusations of making a professional mistake
A mistake can lead to loss of earnings, extra costs to put things right or a damaged reputation. Clients who believe your work caused a loss may take legal action.
Blame for causing a financial loss
A legal action against you could end up in financial compensation. Without adequate insurance protection, everything you own could be on the line.
Contract disputes
Unmet or poorly defined expectations are a common cause of contract disputes, often resulting in extra redo work or an unpaid invoice.
Professional indemnity and public liability insurance for contractors
In today's business landscape, contractors, whether in white or blue collar professions, face a variety of risks. These professionals handle their clients’ property, deal with sensitive data, manage critical projects, and provide expert advice.
Any error, no matter how minor, can result in significant financial losses for their clients and potential legal action against them. Therefore, understanding the importance of and the subtle differences between professional indemnity (PI) and public liability (PL) insurance is important.
Professional indemnity insurance for contractors
If your clients pay you to use your skills and expertise to solve a problem, you will need professional indemnity insurance as part of your contractor's liability insurance.
Professional indemnity provides legal defence paid for by the insurers if you face a client accusing you of a costly mistake. If it comes to it, and you are required to pay compensation, contractor professional indemnity insurance will be there for that too.
What does professional indemnity insurance for contractors cover?
Professional indemnity insurance protects you from claims or accusations of wrongdoing resulting from your professional advice or work.
Cover includes:
- Failing your duty of care
- Making a mistake
- Acting negligently
- Giving the wrong advice or recommendation
For example:
- Your work is deemed unfit for purpose, and your client refuses to pay your fee or is asking for a refund.
- Your client claims compensation because they believe your work costs them money.
- Your work or advice may have led to an injury or death
- You’re accused of discriminatory and inappropriate conduct
What professional indemnity limit do contractors need?
You should consider several factors when deciding on a professional indemnity limit:
- Does your contract specify professional indemnity up to a specific limit?
- Does your contract state you agree to be liable for damages up to a certain amount (e.g. £1,000,000)?
- What is the total value of your contracting work over the last few years?
- What costs might you be exposed to if your work goes wrong?
- What might it cost your client if you can’t deliver on time?
- Do you play a senior role in the delivery of work?
Your work contract often dictates the minimum professional indemnity limit required. If you have yet to receive your contract, ask your client or recruitment agency for the details so that you have enough time to explore your insurance options.
Switching your professional indemnity insurance
Typically, in the UK, if you cancel a professional indemnity policy, you can no longer claim against it.
Therefore, if you switch your contractor insurance provider, be sure your new policy covers your past work; this is called “retroactive cover”.
Should I retain professional indemnity if I am between contracts?
If you move between contracts or are about to give up contract work, consider keeping your professional indemnity cover. Professional errors may only appear months or years after you produce the work.
If a past client sues you for damages and you have cancelled your policy, you will not be covered.
How long you keep your PI cover is up to you and your particular appetite for risk.
Public liability insurance for contractors
Sometimes, your contract will require public liability insurance. If this is not the case, but you deal with customers, their property or third parties during your work, you still might need public liability.
Public liability insurance protects you against accusations of causing an accident leading to an injury or property damage.
What does contractor public liability insurance cover?
Public liability insurance is valuable when faced with injury claims and compensation demands.
Cover includes:
- accidental injury or death
- accidental property damage
For example:
- A tradesperson might be accused of causing a slip and fall accident if the tools they left on the floor are the cause.
- A builder dropping a brick on the neighbours’ conservatory will be asked to pay for the damage to the property.
- A food stall operator contracted to provide refreshments for an event may be accused of food poisoning resulting from contaminated food.
- A property consultant can face claims of damage to or theft from a property if something happens on their watch..
- A contractor using their equipment or machinery may be accused of causing an accident by poor equipment maintenance.
- Causing an accidental injury to a member of the public can happen to anyone at any time.
It is essential to consider your work settings when deciding whether contractor public liability insurance is for you. Your profession and claim history will determine cost factors, but remember that even a tiny policy limit is better than not having it.
Other insurance contractors buy
The insurance coverage you need as a contractor will vary depending on your circumstances. Are you dependent on costly computer equipment for your livelihood? What would happen if you were unable to work due to illness? Can you afford to bear the burden of unpaid invoices? Are you concerned about the well-being of your loved ones?
Commercial legal expenses insurance
Most commercial legal expenses insurance will protect contractors against various tax and legal issues you may encounter due to your profession, which are not covered by professional indemnity or public liability.
At Suited, we combined £100,000 of commercial legal expenses insurance with helplines and other tools to better assist contractors in dealing with these issues. We call this Business Legal Protect, and it’s part of your subscription.
Business Legal Protect offers qualified advice and assistance with:
- Legal and accountancy matters concerning your contractor activities
- Criminal prosecution
- Compliance & regulation issues
- Help with chasing unpaid invoices (over £200)
For example:
- HMRC flags you for an IR35 investigation
- You need legal help chasing a client who has not paid a significant invoice
- You’re facing a contractual dispute
- You wish to take a recruitment agency or client to court over a breach of contract
Business equipment insurance
As an independent contractor you are likely to be relying on your business equipment to deliver work. The cost of repair or replacement may not be something you could afford easily. The right insurance can help with any unforeseen repair or replacement costs.
Contractor income protection insurance
When a critical illness strikes, your ability to earn stops. Income protection insurance provides a financial lifeline for several months until you get well enough to return to work.
Income protection insurance is usually based on your average monthly earnings, and it will pay about 80% of your monthly income if you become critically ill. Coverage varies from provider to provider, and you must read the conditions.
Also, remember that if the cost of covering your monthly earrings seems too high, you can always opt for a lower limit. Perhaps just enough to cover the essentials - mortgage or rent, utilities, etc..
Personal accident insurance
Personal accident insurance benefits those in riskier work areas such as construction.
A severe accident might mean returning to the same profession is no longer an option. Personal accident cover provides a one-off quick payment to bridge over the worst.
It is usually a very inexpensive cover, costing less than a cup of coffee monthly. The cost will depend on what you do and how much coverage you need.
Life and relevant life insurance for contractors
If you are contracting, you are not receiving any employee benefits. Therefore, protecting your loved ones against the worst is much more critical.
As much as none of us want to think about the end, it’s often a load off your mind once you go through the process and secure a life insurance policy designed to provide for your family.
There are many ways of protecting against a life-changing situation - key person insurance, relevant life insurance and others. The one most suitable for you will depend on your professional and personal circumstances. It often helps to take advice from a specialist life insurance provider.
Shopping for contractor indemnity insurance
Whether or not you decide to use Suited contractor insurance to protect your business, it’s worth keeping the following in mind:
Cheap contractor insurance
When choosing contractor insurance, consider both prices and after-sales service. Contacting your provider is important. At Suited, we offer various options and respond promptly.
Retroactive and run-off cover options are essential for contractors
Contractors need to be able to get cover for past work. Suited provides both of those options.
Many providers charge fees to amend or cancel
Low initial prices often hide additional charges to pay monthly, amend or cancel your policy. At Suited, we charge no extra fees, and you can cancel anytime with no more to pay.
Some policy wordings are restrictive or have a high excess
Some providers will offer attractive prices, but it is at the expense of cover given. Suited professional indemnity and public liability have £0 excess.
