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I’m A Contractor - What Insurances Do I Need?
It is one of the most important but least exciting items on a contractors ‘to-do list’… business insurance. All contractors, irrespective if they have decades of experience or are just starting out, need to remember that if they are working via their own limited company, they will, 99.99% of the time, be required to insure against the financial risk that they face and must be able to evidence this before they meet the terms of the end client/agencies contract.
What are the main insurances my business needs?
Professional Indemnity (PI), Public Liability (PL) and Employers Liability (EL) are the main insurances a contractor will likely need. These insurances are all ‘liability’ insurances which protect the business against the costly allegations of negligence, which can include completely frivolous claims. PI is the main insurance and protects the business against the costly legal fees and possible compensation arising from allegations of errors or omissions in the service and/or advice provided to end clients i.e. poor code programmed into a system, or poor advice, that causes the end client financial loss. PL provides protection to the business from the legal costs and possible compensation arising from claims made by a member of the public i.e. injury to a colleague or breaking a valuable piece of equipment. EL protects the business against the legal costs and possible compensation arising from claims made by employees for bodily injury, which worse case can include death.
What insurances are required by law?
In terms of what is required by law, only EL insurance is legally required, and for a minimum of £5m. That said, there are exclusions, including one which stats that if you are the only employee/director of the business and own 50% or more of the issued shares, then you are exempt and are not required to hold it. If you are required to legally hold EL insurance and do not, and you get caught by the Health & Safety Executive (HSE), they can fine the business £2,500 for every day that it is uninsured.
Why do I need business insurances?
Holding business insurances will likely be a requirement cascaded down by the end client and/or agency. This means that without it, you cannot commence the contract. In addition, by holding business insurances it improves your IR35 status as you can evidence that you are in business on your own account, and that you face financial risk. It is also prudent business practice to insure away the risk and provide yourself with complete peace of mind, even if the risk of a claim occurring is minimal.
What levels of these insurances do I need?
The most common levels of insurance requested are £1m for PI, £1m or £2m for PL and £10m for EL. The required minimum levels required will be clearly stated in your written contract, but you should always consider the risk that the business faces i.e. what industry you work in, do you work around people, and what equipment you have. Your risk appetite will always play a part, but you should think long and hard as to if they need to insure for a higher amount – underinsurance can finish a business just as easily as being not insured at all.
What other insurances should I consider?
Contractors often look to insure against other common risks that they face and which they have little to no control over. The main risk is HMRC investigations, including IR35 status enquiries. This can be protected against by taking out an IR35 Tax Investigation Insurance, and can be extended to include cover against the back tax, interest and penalties applied by HMRC at the conclusion of their IR35 status enquiry. Contractors often also choose to protect against a range of commercial legal disputes via a Contractor Legal Protection insurance.
What About IR35 Contract Reviews?
Whilst not an insurance, a contractor would be wise to understand their IR35 position i.e. if they are inside or outside IR35. This can be done via an IR35 contract review, which is available from just a few specialists, including Larsen Howie. This will advise you on your IR35 position and where to improve it – giving you valuable evidence if HMRC come calling.
How much do the insurances cost?
For the low price the insurances are available at, and the huge sums faced in the event of a claim, it makes complete sense to insure against those risks. The precise premium you will be charged primarily depends on your trade and what level of insurance you decide to take out for each policy, but a professional contractor whose turnover is under £200,000 per year and takes out PI, PL and EL they should be paying around £250 to £300 year.
Where can I get the insurances from?
There are specialist brokers who provide insurances specifically designed for contractors, freelancer and consultants, and who provide the ability for the insurances to be quoted and bought online. Our chosen partner, Larsen Howie, offer marketing leading insurances as well as a range of IR35 contract reviews at market leading prices, all available to quote and buy online 24/7/365 at www.larsenhowie.co.uk where the prices start from:
- Professional Indemnity - £144
- Public (& Employers) Liability - £44
- IR35 Tax Investigation Insurance - £50
- Contractor Legal Protection - £30
- IR35 Contract Review - £44
