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Insurance for contractors

12th December 2016

Depending on the type of work you do as a contractor, there will be certain types of insurance you’ll either be required to have, or which still might be a good idea.

The most common types of insurance paid for by contractors are those that cover you from negligence, such as Public Liability Insurance, Professional Indemnity Insurance, and Employers Liability Insurance.

Legal requirements for contractors

As a contractor you are legally required to have an Employers Liability Insurance policy, but if you are the sole director and employee of your business, as many contractors are, you are not required to. However, if you employ even one employee, even if it’s only a family member, you are again required to have it.

The other insurance types we mentioned previously are not a legal requirement, though it still might be a good idea to have them depending on your circumstances.

Contractors might also want to consider Income Protection Insurance, Jury Service Cover, or Office Contents Insurance, to cover against loss of earnings in events such as getting called for jury service, your office equipment gets damaged, or you are unable to work due to illness.

How does insurance benefit contractors?

If you don’t want work fall foul of IR35 rules and be made to pay more tax, having insurance will show HMRC that you are running your business independently, and not an employee of another business
Most recruitment agencies require you go have insurance before they will let you find work through them.
If any claim is made against you as a contractor, insurance can cover you if you get sued.

How much insurance cover do contractors actually need?

When contractors find work through agencies, the agency will usually tell them what level of cover they require them to have.
However, if you are a contractor who deals directly with your clients, and so don’t have an agency to tell you the level of insurance you need, a good rule of thumb is £10m for Employers Liability Insurance, £1m for Professional Indemnity Insurance, and £1m for Public Liability Insurance. While £10m for Employers Liability Insurance seems like a scarily high number, remember that you only need it if you employ at least one person.

How much does insurance cost contractors?

There is now a lot of competition among business insurance providers, so prices have been pushed down considerably. It all depends on the type of work you do and your level of income, but insurance costing £300 isn’t unheard of in the right circumstance. The good news is that business insurance is an allowable business expense – you can ask your accountant about this if you want to know more.

Don’t have an accountant yet? Why not try Pearl? We give a free initial consultation where you can see if we’re right for you, and we have specialist contractor accountants.

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