Updated on: Oct 3, 2023
Today we look at contractor insurance. Whether you operate as a limited company or a sole trader having insurance for your business can provide you with a degree of comfort in knowing that if things go wrong then you have a safety net that can help keep you out of trouble.
For a lot of our clients it is a requirement by the agency they work through, or the end client they work for, that insurance must be in place, and this is usually why we get asked the question about contractor insurance and what options are available.
We always stress to all of our clients that we do not recommend any insurance providers, and we don’t receive any kickbacks for introductions. We do however have a list of insurance providers that our clients historically have used, and we tend to keep this up to date to ensure the good insurance providers stay on this list.
As a contractor, you know that every project comes with its share of potential risks and challenges. Protecting your business and ensuring its growth requires not just skill and dedication, but also the right insurance coverage.
In this guide, we will explore the essential types of contractor insurance, including professional indemnity, public liability, and employers’ liability, and discuss how to choose the right policies for your needs. By the end, you will have a good understanding of contractor insurance and how it can help safeguard your business from potential financial losses.
Want to watch our YouTube video instead? It summarises the main points but refer back to this article for more in-depth information.
- Understand the legal requirements and recommended coverages for contractor insurance to remain compliant and protected.
- Employers’ Liability Insurance is a legal requirement, while Professional Indemnity, Public Liability, Portable Equipment Cover can provide comprehensive protection.
- Cost savings tips include comparing quotes & increasing deductibles. Effective risk management & contract management are key components for reducing claims against your business.
- Insurance providers used by our clients typically includes Kingsbridge, Qdos, and Hiscox.
Understanding Contractor Insurance
Contractor insurance is an umbrella term that covers a range of insurance policies. It provides financial protection for contractors in the event of unexpected risks or damages. The most frequent types of contractors insurance include professional indemnity, public liability, and employers’ liability. The scope of contractors insurance cover required depends on your sector, revenue, and type of clients. Assessing the potential risks linked to your contracting work is necessary, as accidents, disputes, and claims can significantly affect the contractor insurance cost.
Having the right insurance policies in place ensures that your business is protected from unexpected events that could have a significant impact on its finances.
Professional indemnity insurance
Professional indemnity insurance protects you against client claims related to mistakes, negligence, or financial losses. This type of insurance covers legal fees, court costs, and compensation in the case of a claim. Professions such as physicians, attorneys, architects, engineers, IT professionals, and advisors may require professional indemnity insurance.
This is the most common type of insurance our contractors get and if you purchase a package of insurance products that includes professional indemnity, public liability, and employers liability insurance, then the professional indemnity insurance portion will represent the most significant cost of the overall package. So in terms of contractor insurance, professional indemnity insurance is the main one that you want to be looking at.
In addition to professional indemnity insurance, contractors may also consider personal accident insurance to protect themselves from financial losses due to accidents or injuries while working. This can be especially important for contractors working in high-risk environments or with expensive tools and equipment. Securing the right insurance not only instills peace of mind, but also plays a vital role in garnering clients’ trust and landing contracts.
Public liability insurance
Public liability insurance is another common type of coverage for contractors. This insurance offers financial protection if an individual is injured or their property is damaged due to your business activities. Coverage includes compensation costs and legal fees, ensuring that your business is not held liable for accidental injury or damages.
This type of insurance is particularly important for contractors who work on-site or interact with clients and their property. Claims can be made for almost anything, from a spilled coffee on the floor which causes someone to slip, to accidentally damaging their computer equipment. Essentially this insurance is important if you’re working at a client site and you do something that damages their equipment or causes someone to have an injury.
Employers’ liability insurance
If you employ people in your contracting business, employers’ liability insurance is a legal requirement. This insurance provides financial protection in the event of an employee filing a claim for compensation due to illness or injury sustained in the workplace. Employers’ liability insurance is the only type of contractor insurance that is legally required, making it an essential coverage for businesses with employees.
Having employers’ liability insurance ensures that your business is protected from financial losses if an employee suffers illness or injury as a result of their work and pursues legal action for compensation. This type of insurance is crucial for maintaining the financial stability of your business and safeguarding its reputation in the event of a claim.
Keep in mind though that there are a number of excluded categories that are exempt from the requirement to hold employers liability insurance. One excluded category is sole directorships where the company employs only its owner and that individual also owns 50% or more of the issued share capital. What this means is that a number of our clients fall outside of the legal requirement for employers liability insurance. Having said that, what most of our clients find is when they purchase contractor insurance, employers liability is included and the cost of it is quite small, so they just choose to include it within their overall contractor insurance package.
Legal Requirements and Recommendations
Understanding the legal mandates for contractor insurance is important to keep your business compliant and protected from possible risks. It is always a good idea to consult with a contractor insurance professional to ascertain the applicable regulations in your area, and you will find there are plenty of organisations operating in this space.
Beyond adhering to legal necessities, it’s a good idea to consider suggested additional coverages for a more comprehensive protection of your business. In the following sections, we’ll discuss employers’ liability insurance, which is legally required for contractors with employees, and also explore other recommended coverages to ensure your business is well-protected in various situations.
Employers’ Liability Insurance
Employers’ liability insurance is a legal requirement for businesses with employees. This type of insurance provides coverage to employers in the event their employees sustain an injury or illness as a result of their work. Employers’ liability insurance typically covers the costs of compensation claims made by employees, including medical expenses, lost wages, and legal fees.
When searching for employers’ liability insurance, it is essential to:
- Compare various policies and providers to identify the optimal coverage for your business.
- Carefully review the policy documents to comprehend the scope of coverage and exclusions.
- Consider the cost of the policy and any potential discounts.
By doing so, you can ensure that your business is protected from potential liabilities related to employee claims. Keep in mind though that there are a number of excluded categories that are exempt from the requirement to hold employers liability insurance and our single director limited company clients fall into this camp.
Recommended Additional Coverages
For comprehensive protection, we recommend considering additional coverages such as professional indemnity, public liability, and portable equipment insurance. These coverages can help protect your business from a wide range of risks, ensuring that you have the right level of protection in place to safeguard your assets and financial stability.
Professional indemnity insurance covers legal costs and damages that may be awarded to a client in the event that a professional is found to be liable for an error or omission. As I mentioned before this is the main insurance product that applies to our clients, and when looking at an overall package of insurance products the professional indemnity insurance is usually the most expensive element. Public liability insurance covers legal costs and damages that may be awarded to a third party should a professional be found liable for a mistake or omission. Portable equipment insurance provides coverage for loss or damage to equipment utilized for professional services, covering the cost of repair or replacement of the equipment, as well as any related legal expenses. Legal expenses insurance can be an additional layer of protection for professionals in case of legal disputes.
By investing in these additional coverages, you can ensure that your business is well-protected from potential risks and liabilities.
Protecting Your Assets with Portable Equipment Cover
Portable equipment insurance is beneficial for contractors as it aids in covering the cost of repairs and replacement of equipment, which can be costly and lead to delays in project completion. Ensuring the correct storage and security of equipment is essential to prevent insurance policies from becoming invalid.
Having the right portable equipment insurance in place can provide peace of mind and protect your business from potential financial losses. By evaluating your equipment needs and choosing the appropriate coverage, you can safeguard your valuable tools and equipment, ensuring that your business can continue to operate smoothly in the event of loss or damage.
With the rise in remote working, the protection of your portable equipment has become even more important. This includes not only your laptop but also things such as headphones, a second screen, an external keyboard and mouse, charging pads, webcams, and microphones. In the event this equipment is damaged you may have a reserve of funds that will allow you to purchase new equipment, but in the absence of that an insurance product might come in very handy.
Assessing Your Equipment Needs
In order to determine your equipment needs to help formulate your insurance, it’s essential to evaluate the tasks or operations that necessitate its usage. Here are the steps to follow.
- Identify the exact requirements for each task, including the type of equipment required, the quantity, and any special features or capabilities.
- Consider the frequency and duration of equipment use.
- Evaluate your budget and available resources to determine the most cost-effective option for acquiring the necessary equipment.
Research and compare various business equipment options, considering factors such as quality, reliability, and maintenance requirements. Seek advice from industry professionals or equipment vendors to get their recommendations and insights.
By carefully assessing your equipment needs, you can choose the right level of portable equipment insurance to cover losses, damages, and repairs.
Tips for Properly Storing and Securing Equipment
Proper storage and security of your equipment is crucial to minimizing the risk of theft or damage and maintaining the validity of your insurance policy. Implementing best practices for storing and securing equipment can help ensure that your assets are protected from potential risks.
Some recommended practices for storing and securing equipment include:
- Maintaining a clean and dry environment
- Utilizing appropriate storage containers or racks
- Securing equipment with locks or security systems
By following these guidelines, you can protect your valuable tools and equipment and reduce the likelihood of theft or damage.
Contractor Insurance Costs and Savings Tips
The cost of contractor insurance is dependent upon several factors, including:
- The insurance products selected
- The amount of coverage needed
- The type of coverage required
- The size of the business
- The geographical location
- The specific risks involved
These factors can influence the cost of contractor insurance for an IT contractor.
In this part, we’ll examine the factors influencing insurance premiums and offer some tips to cut down on insurance costs. By understanding the factors that affect your contractor insurance premiums and implementing some cost-saving strategies, you can ensure that your business is well-protected without breaking the bank.
Factors Affecting Insurance Premiums
A variety of factors can influence insurance premiums, including:
- Type of coverage
- Deductible amount
- Claims history
Each of these factors can impact your insurance premiums differently, and it’s important to understand how they affect your rates to make informed decisions about your coverage.
For example, younger contractors may face higher premiums due to their age and perceived higher risk, while contractors with a good record and credit history may enjoy lower rates. By taking the time to understand the factors that influence your insurance premiums, you can make more informed decisions about your coverage and potentially save money on your contractor insurance costs.
Tips for Saving on Insurance Costs
There are several strategies you can employ to save on insurance costs, including:
- Comparing quotes from multiple insurers
- Bundling insurance policies
- Taking advantage of any discounts available
- Periodically reviewing coverage
By implementing these cost-saving strategies, you can ensure that your contractor insurance is both comprehensive and affordable.
One key tip is to work with an independent insurance adviser who can help you design an optimal protection package by evaluating your clients, industry, and risk level, ensuring you acquire the most suitable products at an affordable cost. By taking a proactive approach to managing your insurance costs, you can protect your business while minimizing expenses.
Managing Risk and Reducing Claims
Reducing the risk of claims and adhering to best practices is very good insurance in itself. Effective risk management involves identifying, assessing, and prioritizing potential risks and implementing strategies to mitigate their impact. In this part, we will address the significance of clear communication, effective contract management, and adherence to industry best practices in decreasing potential liabilities.
By proactively managing risk and implementing safety procedures, you can minimize the likelihood of accidents, injuries, and claims against your business. In the following sections, we’ll explore some strategies for effective communication and contract management, as well as discuss best practices and safety procedures to reduce potential risks.
Effective Communication and Contract Management
Maintaining clear communication, managing contracts effectively, and setting expectations with clients are all important steps to take in minimizing the risk of disputes and claims. Before signing any contract for work, it is advisable to review it thoroughly and retain copies of all emails and other communications in the event of any disputes.
Some tips for ensuring effective communication and contract management include:
- Establishing definitive communication pathways
- Specifying roles and duties
- Utilizing written communication
- Establishing explicit expectations
- Maintaining open and honest communication
- Monitoring contract execution
- Maintaining orderly records
By implementing these strategies, you can minimize the risk of disputes and claims and maintain a positive relationship with your clients.
In conclusion, contractor insurance is an important component of protecting your business from potential risks and liabilities. By understanding the types of contractor insurance, such as professional indemnity, public liability, and employers’ liability, and assessing your unique needs, you can ensure that your business is well-protected. Be sure to meet the legal requirements for contractor insurance and consider additional coverages for comprehensive protection.
Don’t forget you can also safeguard your valuable tools and equipment with portable equipment insurance and follow best practices for storing and securing your assets. Minimize the risk of claims by maintaining clear communication, managing contracts effectively, and implementing safety procedures. By taking these proactive steps, you can help protect your business from potential financial losses and ensure its continued growth and success.
Frequently Asked Questions
What insurance should contractors have in the UK?
Generally speaking contractors should carry three types of insurance. The most important insurance product is professional indemnity that protects you against client claims related to mistakes, negligence, or financial losses. When buying a contractor insurance product, the other two types of insurance commonly wrapped in are public liability insurance, and employers liability insurance.
What is IR35 insurance?
IR35 insurance is a tax insurance policy that provides support from a team of tax experts to assist with an IR35 enquiry and other HMRC inquiries.
It can help protect contractors from the financial and reputational damage that can be caused by an HMRC enquiry. It can also provide access to specialist tax advice and support to ensure that contractors are compliant with the latest IR35 legislation.
How does contract insurance work?
Contract work insurance provides cover for accidental loss, damage, or destruction of work in progress on a construction site. It covers materials and labour used as well as tools and equipment that are hired, enabling the project to be restored to its original status before the damage. This form of insurance helps protect both the contractor and client from financial loss.
If your business works in construction, this cover is for the accidental or malicious damage on construction projects that are currently underway. It means you can recover the costs for work and materials already incurred and start back working again.
What are the main types of contractor insurance?
The three main types of contractor insurance are professional indemnity, public liability, and employers’ liability insurance.