Professional indemnity insurance for contractors
If your clients pay you to use your skills and expertise to solve a problem for them, you are likely to need professional indemnity insurance.
It will provide legal defence paid for by the insurers if you find yourself facing a client accusing you of a costly mistake. And if it comes to it and you’re asked to pay compensation, contractor professional indemnity insurance will cover it.
Contractors usually worry about the latter but it is in fact the legal costs and the related stress that take the biggest toll. The going back and forth between the parties takes time and with that a fair bit of money. There may never be compensation to pay but there always is a hefty legal bill at the end of every legal dispute. Make sure your contractor professional indemnity insurance provides good legal defence cover.
Why do contractors need professional indemnity insurance?
This cover is often required by a client contract and as a result bought to tick a box without understanding its true benefits. It’s therefore unsurprising that many search for “cheap professional indemnity insurance for contractors” as opposed to contractor indemnity insurance that will actually make a difference if things at work don’t go as planned.
It is true that scenarios when a contractor is accused of wrongdoing are rare but those who have experienced it can attest to the immense relief of having independent contractor insurance in place. Without it, all the legal costs and subsequent compensation would have been theirs to pay.
Do I need professional indemnity insurance as a contractor?
Often contractors believe that just because they work under a senior management within a client’s company, they are not at risk. This is no doubt what a junior KPMG auditor thought when participating in the audit of UK outsourcer Carillion. And yet some months later he found himself facing a threat from being banned as an accountant for life and a fine of £50,000.
We don’t know whether this junior auditor was a contractor but the moral of the story is that an accusation of wrongdoing can happen to you at any point in your career. And as an independent contractor you are a lot more exposed.
Public liability insurance for contractors
If during the course of your work you deal with clients, their property or third parties, you may wish to consider public liability insurance as a way of protecting yourself against accusations of causing an injury or property damage.
Public liability cover will deal with the defence of such a claim as well as pay any compensation if it becomes due. The more your work is exposed to third parties, the more likely you are to face a claim of this nature. Public liability claims are a lot more common than those covered by professional indemnity.
When do contractors need public liability insurance?
Public liability claim scenarios vary a great deal and often depend on the type of profession.
For example:
- A tradesman might be accused of causing a slip and fall accident if the tools they left on the floor are the cause.
- A builder dropping a brick on the neighbours’ conservatory will be asked to pay for the damage to the property.
- A food stall operator contracted to provide refreshments for an event may be accused of food poisoning resulting from contaminated food.
- A property consultant can face claims of damage to or theft from a property if something happens on their watch..
- A contractor using own equipment or machinery may be accused of causing an accident by poor equipment maintenance.
- Causing an accidental injury to a member of the public can happen to anyone anytime.
It is important to consider your own work settings when deciding whether contractor public liability insurance is for you. Your profession and claim history will be determining cost factors but remember that even a small policy limit is better than not having it at all.
What other insurance do I need as a contractor?
Contractor insurance consists of several elements, depending on the nature of your profession and the extent of your work.
All contractors face some liability risks when working independently and there are several insurance products to help with legal defence and costs of compensation if as a contractor you end up facing a legal claim.
Some contractors may also need to consider protecting their business equipment against physical loss and damage and the same applies to their health. If an illness or injury can stop you from earning then adding a health insurance product to your backup plan might be essential.
And sometimes there are contractual obligations. Even when you feel there is no need to protect your liabilities, you may find that the client contract you have signed stipulates certain insurance requirements.
Tools and business equipment insurance
As an independent contractor you are likely to be relying on your own business equipment to deliver work. The cost of repair or replacement may not be something you could afford easily. The right insurance can help with any unforeseen repair or replacement costs.
Income protection insurance for contractors
When a critical illness strikes, your ability to earn comes to a halt. Income protection insurance is there to provide a financial lifeline for several months until you get well enough to get back to work.
Income protection insurance is usually based on your average monthly earnings and it will pay about 80% of your monthly income if you become critically ill. Coverage varies from provider to provider and it’s very important that your read the conditions.
Also remember that if the cost of covering your monthly earrings seems too high, you can always opt for a lower limit. Perhaps just enough to cover the absolute essentials - mortgage or rent, utilities, etc..
Personal accident insurance
This is particularly useful insurance to those in riskier areas of work such as construction.
A serious accident might mean that going back to the same profession is no longer an option. Personal accident cover provides a one off quick payment to bridge over the worst.
It is usually a very inexpensive cover, costing monthly less than a cup of coffee. The cost will depend on what you do and how much cover you need.
Life and relevant life insurance for contractors
If you are contracting, you are not receiving any employee benefits. Therefore protecting your loved ones against the worse is that much more critical.
As much as none of us want to think about the end, it’s often a load of your mind once you go through the process and secure a life insurance policy that is designed to provide for your family.
There are many ways of protecting against that kind life changing situation - key person insurance, relevant life insurance and others. The one that is most suitable to you will depend on your professional and personal circumstances. It often helps to take advice from a specialist life insurance provider.
