What types of contractor insurance do I need?

Updated 10 September 2020

4min read

Nick Green

Financial Journalist

Updated 10 September 2020

4min read

When you’re a contractor, it’s all about aiming to meet and hopefully exceed your client’s expectations. But even for the best contractors, accidents happen. When they do, having the right insurance in place can help you maintain the reputation, relationships and business you’ve worked so hard to build.

Let’s explore contractor insurance in more detail.

Why do I need insurance as a contractor?

Typically, as a contractor you will work alone and handle your own business, often as a limited company of one person. This means you won’t usually enjoy the same perks as employees, such as receiving life, disability or accident cover. Should something in your workplace go wrong, the responsibility and costs fall entirely on you.

It’s also common for clients to request that contractors have certain types of insurance (like professional indemnity insurance) in place before doing business. This is to safeguard both you and them from financial loss in the event of an incident.

What types of contractor insurance are there?

Unlike many insurance products, there is no specific ‘contractor insurance’ product that’s packaged and ready to buy. Instead, it’s more of an umbrella term used to cover any type of business insurance used by a contractor. You need to build your own policy, combining other insurance policies to create the level of cover you need for your work.

Contractor insurance can be made up of any of the following. The first three are the most common:

• Professional indemnity insurance – if you provide a service, rather than a product, you may need this insurance. It covers you against claims and legal costs should your service unintentionally cause a client to lose money or something of value. It’s most commonly used by IT contractors, solicitors, engineers and people who provide professional advice. Clients might request that you have this cover in place before working with you.
   
• Public liability insurance – if your service or equipment causes harm to members of the public or damages their property, this insurance covers you for any claims made. It doesn’t cover faulty workmanship, but is there to help if, for example, someone trips over your equipment and has a bad fall. It’s useful to have if you ever work in public or client spaces. This insurance is often a contractual requirement for offshore contractors in the energy sector.
   
• Employers’ liability insurance – if you employ someone, or have someone working under your direction and supervision, this insurance is compulsory. Without it, you can be fined up to £2,500 a day. It covers you for any claims made by that person if they get ill or injured as a result of working for you. Legally, you need a minimum of £5 million cover.
   
• Personal accident insurance – this insurance covers you should you become seriously injured while working. It can be useful for contractors who do labour-intensive or high-risk work, since you don’t have accident or disability cover from an employer.
   
• Tax liability insurance – this insurance protects you should HMRC open an enquiry into your accounts, including IR35 enquiries, PAYE compliance reviews or a VAT dispute.
   
• Office insurance – this insurance protects your workspace against damages from fire, flood or burglary.
   
• Travel insurance – if you’re a contractor who travels abroad for work, this cover protects your business equipment, company money and personal possessions. It also covers medical treatment and legal fees, should you be involved in an incident while travelling.

With so many products to choose from, it can be hard to know exactly which policy to go for. Every contractor and every industry is different.

For this reason, some insurance providers offer specialised insurance bundles for contractors, based on their industry. This includes offshore contractor insurance for the energy, oil and gas sector, IT contractors insurance, or Contractors’ All Risks Insurance for those in construction. The idea behind these packages is to take some of your homework away, prescribing what your industry is likely to need.

What level of cover will I need?

The products and level of cover you need depend on you, your industry, your turnover and the type of clients you have. For example, you won’t need employers’ liability insurance if you have no employees. You might want professional indemnity insurance if you offer professional advice, but the level of cover depends on your clients’ circumstances. For example, how much could they lose if you made a serious mistake?

How much will contractor insurance cost?

Similarly, the cost of your policy depends on the insurance products you choose and how much cover you take out on each of them.

There are insurers dedicated to providing bespoke contractor insurance. It’s worth visiting their websites to see what products they offer, and to get an idea of their prices. Often, they’ll give you a discount for getting a number of policies through them.

Designing an insurance policy for yourself as a contractor isn’t always a clear-cut procedure. It can feel overwhelming to know what to include, especially since your scope changes with each new project and client. An independent financial adviser (IFA) can work with you to build the best protection package. They’ll assess your clients, industry and risk level, ensuring you buy the right products at a price you can afford.

What else can I do to protect myself as a contractor?

The main purpose of contractor insurance is to protect you and your business from suffering financially in the event of legal claims laid against your work. However, there are things you can do at the onset of each project to minimise the risk of this happening in the first place.

The most important thing is to set expectations, communicate regularly and ensure everyone is on the same page. You can do this by:

• Ensuring clear deliverables – as a contractor, you’re liable for the delivery of the product and service. Make sure you understand all the deliverables at the beginning of the project. Before agreeing to anything, make sure you can deliver on them as agreed. If not, re-negotiate.
   
• Triple checking the contract – don’t ignore the fine print. Read the contract in full, multiple times, to ensure you’re happy with every clause and obligation. Only sign when you’re happy and keep a few copies stored.
   
• Always getting client sign-off – insist that your client approves and signs off your work at each step. That way, if there was an error and you both missed it, the responsibility is shared.
   
• Recording meeting minutes – always send a written re-cap of meetings, so that you have a record and reference. Similarly, if you make any new agreements verbally or over the phone, send a record of these in writing. Paper trails are always useful.

Read more tips on working as a contractor.