Everything Contractors Need to Know About Insurance
Even though it’s we have you covered it’s important to know why you need it
Contracting is a career choice that offer great rewards, all built around the core principle of being your own boss. But all the benefits of the contracting lifestyle can suddenly seem very small when things go wrong and you find yourself on the end of a court case as a client or member of the public decides they want to sue you for something. At those moments (and they happen more frequently than many contractors would imagine), you are very much the boss and the buck stops squarely at your door. That’s why these days most contractors are making sure they are fully covered for any eventuality and have signed on to three or four different types of insurance to protect their businesses. This isn’t just for their own protection. One of the most important parts of being a contractor is winning new business and most clients and hirers will only take on contractors who they have faith in and feel secure working with. These days, they not only need to trust the contractor but they need to now that the contractor is covered if things go wrong and consequently will only hire contractors who have all the necessary insurance in place. Insurance therefore has a double benefit – covering you for rainy days and showing new clients that you have brought an umbrella in case it rains!
Link to how you’re covered with Hamilton Bradbury
Public Liability Insurance
The first insurance that most contractors will come across and will want to think about getting is public liability insurance. Public Liability Insurance basically covers you for all of your dealings with the public at large. This covers everything from basic interactions with people as you go about your working day to members of the public and clients coming to see you in your own place of work. Regardless of where it happens, the insurance is intended to cover you if something occurs that leads to a member of the public (or client) getting injured or suffering injuries to their property for which there is a chance that you could be held liable. In the event of something like that happening it is absolutely essential that your business has public liability insurance. Why? Because any claim, no matter how spurious, could end up with you being ordered to pay a small fortune – enough to cripple your business permanently and leave you in debt for many years.
Of course many contractors will weigh this up and think that it doesn’t apply to them – that their contracting business isn’t that kind of business. But as a contractor you are the business and the same rules apply to your business as anyone else. If anyone suffers direct or indirect injury whilst you are going about your work and / or as a result of your activities, whether on their working premises or on yours, you could be held liable. This could be anything from someone tripping up on your carpet and twisting their ankle (even when visiting contractors who work from home) to you spilling a cup of tea on their computer in their office or deleting some of their files by accident. Consequently, although it is not legally required for contractors to get Public Liability Insurance, it would be pretty foolish not to. And as mentioned above this kind of insurance, along with Professional Indemnity Insurance, will often be insisted upon by prospective clients. Most contractors therefore opt for approximately £5 million worth of coverage.
Professional Indemnity Insurance
Just as clients will often insist on Public Liability Insurance it is often the case that professional bodies and industry regulators (as well as clients) will insist that contractors have Professional Indemnity Insurance to cover themselves in the event of some legal action being taken against them.
What exactly does it do?
In a nutshell it covers you against legal action that results from the specific day to day activities of your contracting work. That means that if you offer clients any kind of service, or any kind of advice, and something goes wrong as a result of that service or that advice, you will be covered by Professional Liability Insurance if someone (erroneously or correctly) takes you to court. And bear in mind that often people will take you to court even if your service was fine and your advice was good. But the very process itself and the ensuing legal costs can be enough to ruin a lot of small businesses and contractors, which is why such insurance is absolutely necessary as a safety net. Again, if you think you might not need it or that it wont happen to you, ask yourself if you do any of the following things:
- Do you offer clients advice of any kind whatsoever?
- Do you handle data, intellectual property, property or goods of any kind for clients?
- Do you offer clients any kind of professional service?
- Do you want the bother and expense of going to court?
If the answer is yes then you will need insurance, even if you are certain it will never happen to you. It might, so you need cover. Simple as that. Once you have coverage you will be covered for any claims of negligence as well as claims about your supply of deliverables, claims regarding the loss of documents, claims against infringement of intellectual property and claims for unintentional breach of confidence or a confidential duty. Most contractors will get coverage between £5 million and £10 million.
EMPLOYERS LIABILITY INSURANCE
Chances are most contractors wont need this one, but if the need arises then it is legally required so it is worth mentioning. As a contractor you will probably work alone, but if you ever have a contract that requires the taking on of extra staff or help then you will officially become an ’employer’ and be required to take out Employers Liability Insurance. This will cover you for any claims that may arise against you by employees or former employees (or temps) of your business. And you are required by law to take it so there’s no need to ask yourself whether you truly need it – you do. In the UK you are legally responsible for your employees’ well-being. Should one of them get injured in any way at work – operating a machine, getting ill from work-related stress, tripping over a plug – then they can sue you for compensation. And they can make a claim years later too, so you not only have to get Employers Liability Insurance, you also have to keep records of that insurance for many years after the employee has left your company. Most people opt for £10 million worth of cover in this area, but it is most important to have cover of some kind – failure to do so will lead to you being fined up to £2500 per day.
The three types of insurance mentioned above are the most essential for contractors though there are others to think about too. These days, some contractors opt for IR35 insurance to cover them against IR35 investigations (though most people would point out that it would be simpler to work through an umbrella company!) and many contractors will also want to look into Office Insurance to cover their equipment and offices as well as Personal Accident Insurance and E-Risks insurance.