The Cost of Contracting: What Cover Do I Need?

How can you most effectively protect yourself and your work? Whether you form a contractor limited company or take another route, one of the hidden costs nobody talks about is insurance, but there are few business expenses you’ll be gladder you paid in the event of a crisis. Some clients may even require specific types of insurance be in place before they’ll do business with you. So what kinds of insurance are offered for contractors, how do they help, and which of them will be relevant to your work? Based on conversations we’ve had with contractors we work with, we’ve compiled the following:

Breaking Down Contractor Insurance

In general, a contractor will want multiple coverages dealing with different issues. These may be compiled into a single ‘contractor insurance’ policy package, but these should always be checked carefully against three questions:

• Does this give me the level of protection I need in the areas I need?
• How much of the package is not relevant to me?
• If it has all the coverage I need, is the price better than individual policies tailored to my requirements?

Contractors in different lines of work can have such wildly different insurance requirements that these package deals are often not the most cost-effective way to get what you want. You might want:

Professional Indemnity Insurance

If you provide professional advice or services, rather than products, as part of your work, professional indemnity insurance is well worthwhile. You’ll be covered in the event that your client loses money or other value through unintended consequences of your actions. So, for example, if a new website launch leads to a drop in traffic to an eCommerce site, this coverage will protect against claims and/or legal costs. Especially on high-importance projects for larger businesses, some companies may want you to have this cover in pace before offering a contract.

Personal Accident Insurance

If your work takes place in a highly physical industry (for example, if you’re working under the CIS) you run the risk of injury while working, and these injuries can be or become serious enough to affect your ability to complete the contract or take on others. This replaces the accident and disability cover you would have as an employee, and it provides for you during your recovery. In these circumstances you may also want another type of cover:

Business Interruption Insurance

Simply put, this covers you in the event your ability to continue doing business is interrupted. As well as suffering physical injury or illness severe enough to prevent you from working, this is also useful through other interruptions. Our offices are based in Lancaster, and ten years ago power was out to the town for several days, with phone and internet connections down for most of a week; for many tech businesses in town this was a significant interruption.

Tax Liability Insurance

It’s easy to hear about tax liability insurance and think ‘well, I use specialist contractor accountants to ensure compliance, I don’t need that’. However, this insurance is designed to help you in the event of HMRC enquiries of all kinds, even VAT disputes – and while a good accountant will ensure that the outcome of such an enquiry will be fine, the enquiry itself can affect your business for some time.

Public Liability Insurance

Public liability is highly recommended if you work in public or client spaces, and may be required for oil and gas contractors. This cover protects you if your work – or your equipment – damages the property of a member of the public or causes them harm. Less commonly, some contractors may need office insurance to protect their workspace or travel insurance if their work involves travel abroad.

Choosing the Right Insurance for You

The market for insurance is a highly competitive one today, thanks in no small part to the proliferation of price comparison websites, but you should remember that the price of the insurance isn’t the only factor; you should check the specific cover you’re offered, both in terms of what it covers and how much it covers you. We recommend consulting a professional, as what comparison sites can’t always factor in is a potential discount when you use the same insurer for multiple different policies.