We very strongly recommend that you take suitable insurance. For most independent contractors, being insured forms part of your contracts with clients and it’s a vital part of protecting yourself against unforeseen eventualities. We know it can be a minefield when it comes to purchasing the right insurance cover to protect you and your business. The sheer volume of products available to you can make the whole process a little overwhelming, so we outline the most important insurance cover you will need as a contractor and freelancer operating through your own limited company.
Professional indemnity claims for IT consultants have been on the rise over the last five years, where contractors have had to bear the exorbitant costs of specialist legal representation and expert evidence to defend an action in the absence of adequate cover.
Scenario: Tech Industry
Let’s say you design a database for a client. A malfunction after implementation prevents anyone from accessing that data for seven days. The company takes action, using weekly sales figures to argue that you caused the company to lose £170,000 in sales. If the company experiences financial loss, you could be sued for that amount plus legal fees.
You’re at higher risk in the tech business
The tech industry is mostly vulnerable because technologies are so new, and the law is still being defined and moulded, and there’s no clear standard on what constitutes negligence, or even on what an IT consultant is. There are simply not enough legal precedents in the tech industry yet.
So it’s important to understand that all professional contractors have a duty of care to their clients when they undertake work for them. It’s a breach of that duty of care that usually results in a claim.
The nature of your business and the type of services you offer will determine the insurance you should consider to ensure you are adequately covered, although there are three key types of insurance which are vital:
Professional indemnity insurance is designed to protect contractors against claims for negligence (such as making a mistake, or giving bad advice.) It also provides cover for loss of documents, loss of data, breaches of intellectual property, as well as defamation and libel. If you do make a mistake for which you’re responsible or are deemed to have been negligent, then professional indemnity will cover any compensation that you have to pay as a result, as well as any legal costs you’ve incurred in the process. A mistake could end up costing you tens or hundreds of thousands of pounds so it’s vitally important to have the right protection in place. It’ll also cover the cost of fixing any mistake you may have made, which could help you to avoid having a larger claim made against you
Public Liability (PL)
Public liability insurance provides cover for damage to third party property or injury to third party persons, as well as covering any legal fees that may arise as a consequence of any claims you have to defend. It allows you to go about your work safe in the knowledge that you’re covered should things happen to go wrong. Even if your contract doesn’t stipulate that having public liability is a requirement, it’s still a very good idea to make sure you hold it, as it’s a good way of mitigating any risks you might face.
Even if you don’t have any employees of your own, it’s still extremely likely that your client will require you to hold employers’ liability insurance. Most contracts are standardised and require you to have employers’ liability regardless of your situation. It’ll also cover you if you have a spouse working for your business in some capacity, or if there is a substitution clause in your contract. It’s likely to only make up a tiny portion of the overall cost you’ll pay for your insurance, but does tick an essential box on most contracts. It’s also highly recommended to consider an additional insurance to protect yourself if you’re injured either at work or commuting to or from work.
Personal Accident Cover (PA)
If you’re injured as a result of an occupational accident and are unable to work, then there’s a good chance you’ll be looking at a significant financial loss due to the loss of your contract and any subsequent earning potential. With personal accident cover, you’ll be paid a weekly benefit whilst you recuperate. Should your accident leave you with a permanent disability, or cause your death, then a lump sum will also be paid out. Whether you’re injured in your home office, commuting to work, or at work, in either the UK or abroad, personal accident cover will protect you, meaning you won’t have to worry about those food bills, the mortgage, or any other things you might take for granted when you’re working and earning money.
Income Protection (IP)
Whilst permanent employees have the benefit of at least 3 months’ salary in the event of an accident or sickness, as a contractor you face financial loss the first morning that you are unable to arrive on site, fit and ready to work. IP insurance provides you with a replacement income allowing you to meet your financial responsibilities.
Square Mile Accounting, through our preferred partner can offer an all-inclusive insurance package specifically designed for the needs of contractors operating their own limited company – with the following benefits:
- Comprehensive worldwide cover for UK contractors
- Generous cover levels as required by the majority of clients – plus higher levels are available
- Cover for previous work
- Available to purchase online 24/7/365
- Instant access to policy documents
- Personal accident included as standard
- A competitive price, guaranteed by a price promise
- Key IR35 Indicator
Working with an accounting partner you can trust, like Square Mile Accounting, can help to reduce your back-office admin and get you up and running with your Limited Company much faster. If you would like to speak to one of our online chartered accountants about your options, please book a free exploratory meeting online here.