What Insurances Does a Contractor Need? - PI

Now more than ever, numerous insurance policies exist to cater to more or less any contractor requirement to sustain a ‘fall’ if something were to happen.

Examples of contractor cover policies are Professional Indemnity Insurance and Public & Employers Liability Insurance. These are two safety nets that are well worth having in place, as means to support your working practices, and of course as financial protection.

Professional Indemnity Insurance

Professional Indemnity is designed to cover a policy holder should they face an allegation from a third party as a result of an alleged professional error, omission or negligence in the services or advice they have provided.

In addition, regardless of the decisive outcome, preferred Professional Indemnity cover will also insure the representation costs sustained in defending the claim.

Previously, PI insurance was predominantly of interest to ‘established’ individuals, but now lies in the best interests of most professions and sectors providing advice and services alike.

Insurance is not usually a lawful requirement for small businesses, however it is common practice for a contract to feature certain clauses that require a service provider to have a level of Professional Indemnity cover.

A majority of contracts will commonly require a £1 million limit of indemnity, although there are differentiating levels of this policy.

Attaining such insurance can also act as a strengthening factor regarding your IR35 status. It indicates your independent business practices, and accentuates the financial risk you have taken, both of these correlating towards an encouraging IR35 status. Holding PI insurance is also worth 2 points in Her Majesty’s Revenue and Customs Business Entity Test.

It is commonly acknowledged that the risk of a client actually making a claim against a contractor is somewhat minimal, but certainly not unheard of. So in this respect, it should be noted that, if pursued, the risk of one single claim could lead to severe financial anguish that could have easily been avoided.

By:Sam Greenwell

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