Contractor insurance

National statistics suggest that as many as 60% or more of the UK's small businesses are either underinsured or completely uninsured. Such statistics are surprising given the fact that contractors can face civil litigation in the event of accidents, injuries, property damage, or unfulfilled contracts. There are even some instances in which insurance is legally required. You need to know what your insurance obligations are before establishing your limited company. If you are already in business, you owe it to yourself to protect your company and income with adequate insurance.

To be clear, the insurance we are referring to includes both property and liability cover. What is liability insurance? It is a form of coverage that pays out on any claims made against you or your limited company as a direct result of providing services to clients. Claims can be made by clients, employees, or even the public.

Different Insurance Options

Contractors should understand that there is no one-size-fits-all liability insurance policy for every contractor. Different kinds of work mean various ways of covering liability where insurance companies are concerned. Therefore, contractors need to be diligent to make sure the insurance they purchase is the best option for the type of work they do.

Here are some of the general types of cover insurance companies offer contractors:

• Staff Cover – Any contractor with staff other than immediate family members is required to carry a minimum amount of liability insurance to cover workers. This insurance pays out in the event a worker is injured or falls ill as a direct result of performing work on your behalf.

• Indemnity – There are times when you or a staff member might provide service or advice that results in a financial loss for your client. This sort of cover indemnifies you and your company against any claims as a result of such losses.

• General Liability – In all likelihood, your business will involve some sort of direct contact with the public. Even if you focus on business-to-business contracts, the public may still interact with your customer in a way that relates to the services you provide. General liability protection against any claims that result from slip and fall accidents, property damage, etc.

• Facilities and Equipment – The facilities and equipment you use to provide your customers with great service are always subject to risk. Cover for those facilities and equipment protects you against financial claims in the event of a temporary inability to work due to equipment or facilities loss. It may even cover the cost of repairing or replacing facilities/equipment.

• Digital Security – In this day and age of cybercrime, your business could suffer significant financial loss as a result of security breaches or hacking. Digital security cover offers proper protection. If you are part of a technology-based industry, this is a type of insurance you should consider.

There are other types of insurance cover that may be more specific to different industries. Take the time to know and understand what is expected in your industry. Even if the law does not require you to carry a particular type of coverage, your clients may expect you to based on industry standards.

Professional Indemnity

We mentioned indemnity cover in the previous section, but it is important for us to expand on the topic by specifically explaining professional indemnity. We will start by saying this: there is no way to protect yourself and your company 100%. Any experienced contractor can tell you there are always little things that 'slip under the radar' to expose the contractor to liability. However, professional indemnity exists to mitigate as many of those little things as possible.

Professional indemnity coverage is made necessary by the reality that clients trust contractors as experts in their fields. They rely on their contractors to give them sound advice, provide reliable service, and further advance the success of their businesses. When contractor actions run counter to those expectations, liability questions can arise. Professional indemnity is must-have insurance for any contractor whose work involves the following:

• providing professional advice in any form
• handling customer data in any form
• providing any service that includes responsibility for client intellectual property
• providing any service that exposes you to claims of professional negligence.

In short, any contractor whose work opens him/her up to blame in the event something goes wrong with the client should have professional indemnity in place. Lawsuits resulting from negligence claims can be very costly, especially with bigger companies with more to lose.

Shopping for Contractor Insurance

You owe it to yourself and your business to shop around for contractor insurance. Just as with car and home insurance, not every contractor policy is created equal. It is to your advantage to compare as many policy options as possible, side-by-side. The idea is to get the greatest amount of coverage within your budget range.

Remember that the cost of insurance is part of the cost of doing business. You will be able to deduct what you pay for insurance as a legitimate business expense. It is not deducted directly from your tax liability, but it is deducted from your total taxable income, which, in the end, will reduce your total tax burden.

We hope you will not be content to be among the one-third of small businesses in the UK that are uninsured or underinsured. Establishing a limited company and working as a contractor is a big investment of your time, effort, and finances. It would be a shame to see you lose it all because of a lawsuit and no insurance.

If you have any further questions about contractor insurance from an accounting standpoint, do not hesitate to contact ICP. We offer flat rate accountancy services specifically focused on the contractor market. We would be more than happy to answer any questions you have.