For some Contractors business insurance is a requirement from their Agency or a contract condition however, for others it comes as a choice as to whether or not to purchase it. As a Contractor (especially for those entering the contracting world for the first time) it may be a confusing topic as to whether or not to take out insurance if you do have the choice, and if so, which insurance?
The big question you should ask yourself is, ‘what are the potential risks of the job I perform when I don’t have the safety net of a permanent employer?’
Professional Indemnity Explained
As you are a professional at your job the advice you provide to those you come into contact with through your role will be taken on board and trusted.
Professional Indemnity Insurance covers you when this advice leads to an error or a mistake being made.
For example; John, a design engineer creates a technical specification for his client for a new floor which is to be installed above a warehouse. He makes a mistake in his specification and only when the floor is completed is it discovered that it doesn’t have the required load bearing capacity and must be re-installed. Without Professional Indemnity Insurance John would not be covered for the costs of claims made against him by his client as a result of his professional negligence and may well be held personally liable.
Public Liability Explained
Throughout your day-to-day working life you may come into contact with members of the public. If any accidents occur which involve a member of the public or their property as a result of your actions, Public Liability Insurance provides cover for any associated costs for claims against you.
For example; Steve is a contractor developing a new invoicing system for his client. Whilst onsite training users Steve spills a cup of coffee which badly scalds one of the trainees. Public Liability Insurance will cover any healthcare costs incurred by the injured party.
Employer’s Liability Explained
As a result of the Employer’s Liability (Compulsory Insurance) Act 1969 it is a requirement for all employers to have Employer’s Liability Insurance to cover for at least £5 million. This rule does however have some exemptions, one being if you are running a Limited Company employing only the Director, who also owns 50% or more of the share capital within the company.
This insurance covers employer’s whom have claims risen against them by employees who have incurred injury or disease as a result of the workplace they have worked within.
Directors and Officers Liability Explained
If you are a Director of a Limited Company, you may wish to consider the security offered by Directors and Officers Insurance. This insurance ultimately provides financial protection for you in the event that you are sued in relation to work you have carried out as a Director of your Limited Company.
In order to manage the ongoing risk towards your financial assets, Directors and Officers Insurance can be taken out to cover any costs associated with a claim that may arise.
Personal Accident Insurance Explained
Have you considered what would happen to your business if you suffered an injury from an accident and were unable to work? In these circumstances, Personal Accident Insurance Cover could pay you a weekly amount for an agreed period of time. If the accident is more serious and the injury results in permanent disability or even death, you (or your beneficiary) could also receive a lump sum payment.
Arguably, one of the biggest risks a contractor faces is being investigated under HMRC’s IR35 legislation which concerns itself with attempting to discover ‘disguised employees’. Demonstrating your independence from your client is key to ensuring you’re not targeted but it’s something that can be difficult for contractors who are working on longer term contractors, or continuously for the same client, to do. The ‘business entity tests’ which HMRC use to discover these disguised employees include business insurance as an indicator that a contractor is operating independently. That means that holding business insurance in the name of your limited company is an indicator that you are set up as a third party business and counts towards your final score.
All this discussion on risks, claims and investigations can come across as rather negative however, on a more positive note, some forms of insurance can be claimed as an expense to your Limited Company if you are VAT registered, therefore claiming back the tax paid.