You've probably heard of contractor insurance. At some point, you may have even purchased it. But what is contractor insurance? What exactly does it cover and where can you get it from?
Contractor insurance is a generic term which may be used to describe any number of different insurance covers. Broadly speaking however, the term is used to describe Professional Indemnity Insurance, Public Liability Insurance and Employers Liability Insurance - each of which are considered the most common contractor insurance purchases.
Is contractor insurance a contractual requirement?
This varies from contract to contract. Many recruitment agencies and clients will require that their contractors hold insurance(s) for the duration of a contract, and sometimes beyond contract expiry. We therefore recommend that you check your contractual terms to understand your exact insurance requirements and what cover you are required to hold. If you are in any doubt, speak to your agent or client before purchasing cover. Failure to get this right could delay the start of your assignment. Additionally, it could put you in breach of contract further down the line.
Is contractor insurance a legal requirement?
The only insurance required by law is employers liability insurance, under the Employers Liability (Compulsory Insurance) Act 1969. If, like many contractors, you are the sole employee of your company and own 50% or more of the issued share capital, you may be exempt from this legal requirement.
What is Employers Liability Insurance?
Employers liability insurance provides protection against compensation claims made by employees as a result of injury or illness sustained during an employment. If you have employees in your company, which includes your spouse or any family member, you must hold employers liability insurance. Failure to do so could mean you are breaking the law. This can lead to heavy fines, up to £2,500 for each and every day you have gone uninsured.
Should I carry contractor insurance anyway?
If the provision of insurance is neither a legal or contractual requirement, you may decide to purchase insurance anyway. Of course, not all contractors choose to do this, but a fair percentage do. Many will purchase professional indemnity insurance as a matter of course as they are worried about claims being made due to a perceived mistake which has caused their client a financial loss. They see their PI policy as a safety net, giving the peace of mind they need to confidently get on with the task at hand – contracting!
What about IR35?
Contractor insurance looks good from an IR35 perspective. By having contractor insurance in place, it demonstrates to HMRC that a genuine business is being operated. It also shows that you are taking financial risk. From an employment status perspective, financial risk is an important factor and one you should certainly take if you wish to be considered outside of IR35. For added security, you may wish to consider IR35 insurance.
What limits of indemnity should I get?
There is no standard limit. Your contract will usually state the limits required for each insurance. And the law requires Employers Liability Insurance to be held by a contractor - in certain circumstances. However, many contractors hold Professional Indemnity Insurance at £1m, Public Liability at £1m and Employers Liability at £10m. Of course, each contractor is different, and no industry is the same. Take the time consider contractor insurance for your business, and properly understand the limits of indemnity you need to get.
At Larsen Howie, we provide insurance specifically tailored to contractors. If you have questions or would like to discuss taking out cover with us, get in touch today, or click here to get your instant quote.