Do contractors need insurance?

Chris Andreou

April 21, 2021

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Contractors

As a contractor working through your own limited company, it is recommended that you are covered by business insurances whether that be for your own peace of mind or in fact something that is mandatory in your contract.

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What are the different types of contractors?

There are different types of contractor jobs available across diverse sectors. Contractors may be hired to perform services such as:

  • Marketing
  • IT maintenance and support
  • Graphic design
  • Recruitment
  • Business development
  • Catering
  • Construction work
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What business insurance do I need?

Every small business owner needs some combination of business insurance for financial and legal protection against liability in a crisis.

Yet, with limited resources, it can be tempting to look into cutting costs whenever you can. That could mean deciding to purchase only business insurance that you're legally required to have.

But that's overlooking the fact that an uninsured accident could potentially sink your business.

In an Inc. article, startup founder Leo Welder shared about his decision to skip out on a intellectual-property litigation insurance while he was in the process of purchasing general insurance policies for his business.

This proved to be a costly mistake. When his company was later embroiled in a lawsuit with a publicly traded company, he wound up paying several hundred thousand dollars in legal fees.

Looking back on his experience, his advice for fellow business owners is: "It's not just a matter of 'Can I afford this?' but a question of 'Can I afford not to have this?'"

With many different types of business insurance available, it can be difficult figuring out exactly what you need.

Here's when our guide comes into the picture. Below, we answer FAQs concerning business insurance.

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Do I need employers' liability insurance?

For most employers, it is mandatory to have at least £5 million of employers' liability cover, or face a fine of up to £2,500 per day. There are some exceptions to this rule, however: most public organisations and businesses that only employ close family members (as long as they're not incorporated as limited companies) don't necessarily need to have employers' liability insurance.

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What are the difference between public liability and professional indemnity insurance?

Public liability insurance and professional indemnity insurance are both business insurance covers designed to cover compensation claims. However, the types of compensation claims they cover can be quite different.

Public liability insurance can cover compensation claims if you're sued by a member of the public for injury or damage, while professional indemnity insurance can cover compensation claims if you're sued by a client for a mistake that you make in your work.

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What is a contractor?

A contractor is a professional that provides skills and services to a specific client under set terms. The terms can be for a set number of hours, a certain time frame or duration of a project.

A contractor is responsible for their own dealings and has discretion over the work they carry out.

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Is professional indemnity insurance tax deductible?

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What are the disadvantages of contracting?

The disadvantages of contracting are:

  • Uncertainty: Due to the flexible nature of their working relationships, contractors aren't guaranteed work after the end of assignment or project.
  • Responsibility: Not only is it the responsibility of the contractor to find work, they are also responsible for their own finances.
  • Employment rights: As a contractor, you generally wouldn't find yourself holding employment rights that permanent employees benefit from.
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Can I get public liability insurance with a criminal record?

Whether you can get public liability insurance with a criminal record depends on a number of things, including the details of your criminal convictions. Although some insurers won't provide insurance to anyone with a criminal record, some will provide it in certain circumstances.

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What is public liability insurance?

Public liability insurance covers your interactions with third parties (by this definition, anyone who isn't your employee).

If your business causes an injury or property damage to a member of the public, public liability insurance will cover you for the resulting legal and compensation costs.

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Contractor & Freelancer Insurance Guide

  • What is business insurance?
  • What insurance you need
  • Legal requirements for insurance for freelancers
  • Legal requirements for insurance for contractors
  • How to find the best policy
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Is business insurance a legal requirement?

Employer's liability insurance is the only cover that is mandatory by law for most companies who employ at least one employee.

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Errors and omissions vs professional indemnity

Errors and omissions insurance and professional indemnity insurance are different terms used to refer to the same insurance cover. 'Errors and omissions insurance' is more commonly used in the US, while the term 'professional indemnity insurance' is typically used in the UK.

Professional indemnity insurance is designed to protect you against legal liability for breach of professional duty while carrying out your business activities. For instance, if a client believes that your service is inadequate or if you've made a mistake, the insurance will cover you against claims the client makes against you.

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Is a contractor an employee?

Contractors can be self-employed, a worker or an employee. Those who are employed through an umbrella company or an agency could be considered a worker or an employee.

If a contractor is a sole trader or runs a limited company, he or she will then be considered a self-employed person.

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What are the advantages of contracting?

The advantages of contracting are:

  • Flexibility: Contractors have a lot more control over their work life often deciding when they work, where they work and how they work
  • Increased earnings: Contractors are often paid more due to their skillset and the flexible nature of their working relationships. Additionally, contractors who operate through their own limited company can benefit from tax efficiencies.
  • Greater development: Often working with multiple clients throughout their career, contractors are exposed to a lot of opportunities to develop their skills and build on their experience in their area of expertise.
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Does public liability insurance cover employees?

Public liability insurance doesn't cover claims made by employees. It's designed to cover compensation claims made by a third party - for example a client, a customer, a supplier, or another member of the public - because they've been injured or their property's been damaged by your business.

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What is contractor insurance?

There are several types of insurance that a contractor may benefit from. These policies are known as:

Professional Indemnity Insurance - in case a client sues for making a costly mistake whilst undertaking contractual duties such as the loss of data or unintentional breach of copyright.

Public Liability Insurance - in case a member of the public is injured, or property is damaged as a result of the actions of the company (or its employees).

Employers Liability Insurance - in case an employee is injured (or worse) whilst working for the company. Often mandatory for any company's that has more than one working employee.

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Public liability claim examples

Public liability insurance claim examples:

1. Claims made against an electrician:

An electrician was engaged for the installation of a heating system in a commercial building. However, the installation was incorrectly done and caused a fire resulting in damages to the property, which amounted to £50,000. The electrician's insurance policy covered the cost of damage.

2. Claims made against a furniture assembler:

A cabinet that the furniture assembler had fitted fell from the wall, and caused injury to another contractor. The furniture assembler was required to pay just £250, as his insurance policy was able to cover the majority of the costs (£25,235).

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What is personal liability insurance?

Personal liability insurance protects you from legal and compensation costs due to injury or property damage to a third party.

It is fairly uncommon to take out this type of insurance, as it is unlikely that your personal activities would pose a risk of injury or accident. However, if you're self-employed or a business owner, there's a good chance that you'll be interacting with customers or the general public on a day-to-day basis. As such, taking up public liability insurance-the commercial equivalent of this cover-is something you'd want to consider.

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Do contractors need insurance?

As a contractor working through your own limited company, it is recommended that you are covered by business insurances whether that be for your own peace of mind or in fact something that is mandatory in your contract.

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What is employers' liability insurance?

Employer's liability insurance is designed to cover workplace injury or property damage claims made by employees. It is the only business insurance required by law for businesses with one or more employees.

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