What insurance do contractors need?

When you take on a job for a client as a contractor in any capacity, be it as a business analyst, engineering consultant or software developer, it's important to have cover in place to help protect you if something goes wrong.

Insurance for contractors is an efficient and safe way to protect your reputation. It also helps to make sure that you meet the professional and legal standards of an employer, while covering your back should you make any mistakes that could cost your client financially.

Why do contractors need insurance?

Contractor insurance is designed to protect you against the unforeseen – from making a mistake in a piece of work that results in your client losing money, to injury claims from a third party. If a claim is made against you and you don’t have cover in place, you could be left to pay the associated legal fees and compensation payments out of your own pocket, potentially putting a financial strain on your business.

Types of cover for contractors

There are a few different types of cover that contractors should consider to protect themselves. Importantly, many employers legally require that you have the correct insurance before accepting a contract and officially starting work on a role or project. Below we’ll cover the most important types of insurance for contractors.

Contractor professional indemnity insurance

Professional indemnity insurance helps protect your business if someone makes a claim against you for making a mistake in a piece of work. Essentially, it covers the cost of defending your business should you be accused of professional negligence and helps uphold your professional reputation.

A claim from a client could be the result of negligence advice from you. This could be from a recommendation you made which resulted in them experiencing a financial loss.

What could go wrong?

• A project overruns due to a mistake you made during the planning stages. Your client claims against you for the costs they have incurred in the delay.
• Some designs you provided to a client feature incorrect measurements. Your client claims against you for the cost of putting the mistake right.
• You recommend a particular type of software to a client for a particular task. It doesn't deliver the expected improvements and they take legal action against you seeking compensation.

Contractors public liability insurance

Public liability insurance can provide vital protection to third parties, such as clients. As a contractor, you’ll probably spend a lot of time visiting client premises, which can leave you vulnerable should someone have an accident or injury as a result of the work you’re doing. Claims can be made for almost anything, from a spilled drink on the floor which causes someone to slip, to accidentally damaging their computer equipment. It’s necessary to cover yourself in the event of a simple mistake happening that could lead to a costly claim.

What could go wrong?

• A co-worker trips over your laptop cable, breaks their wrist and is unable to work for several weeks. They claim against you for their lost income.
• Whilst working at a client's office, you spill a cup of coffee over an expensive laptop. They claim against you for the cost of replacing the laptop.

Employers’ liability insurance for contractors

Employers’ liability insurance for contractors protects you against allegations of injury (or illness) suffered by employees as a result of their employment with you. Every company that has employees is legally required to hold a minimum of £5m cover.

What could go wrong?

• An employee slips on a wet floor at your rented office and injure themselves. They make a personal injury claim against you.
• An employee trips over a cable at your rented office and is unable to work for several months due to the injury they sustained. They take legal action against you seeking compensation.

Cyber insurance for contractors

Cyber insurance for contractors is becoming more important every day. When you store personal data about your clients and projects on computers or the cloud, you’re vulnerable to threats from cyber-attacks and data risks.

Safeguarding sensitive data is vital to protect you in the event of a cyber-attack. A data breach that exposes client data or otherwise prevents you from working could be very costly for your business. Cyber insurance covers you for the costs of restoring data and recovering equipment, or in a worst-case scenario, paying a ransom for the recovery of data without loss.

Other types of cover to consider

There are a few other types of insurance contractors should consider getting. Each depends on your personal circumstances:

• Office insurance – it‘s worth taking out office insurance to cover your workplace contents and computer equipment. This covers you against loss of income or trading equipment.
• Legal expenses insurance – legal expenses insurance could prove valuable as it covers the costs involved with contract disputes, tax investigations, jury service attendance and more.
• Employers' liability insurance – taking out employers' liability insurance is key if you have employees. It covers you for injury and/or illness claims made by employees while working for you.
• Occupational personal accident insurance – obtaining the appropriate level of occupational personal accident insurance is a worthwhile consideration – it’s there to help you if you’re accidentally injured at work.
• Directors and officers insurance – if you’re looking for protection for you as a company director or officer, then take a look at our directors and officers insurance cover.

Do contractors need employers liability insurance?

Employers' liability insurance is only required if you hire employees to work for you. If you carry out all your work as a sole trader, there’s no need to take it out, unless you are contractually obliged to. Should you want to grow your business in the future and take on employees, this is something you will need to look into.