Most clients and recruitment agencies require contractors to hold certain types of insurance before they can start work. Understanding what each policy covers and whether you genuinely need it helps you avoid paying for unnecessary cover while ensuring you meet contractual obligations.
Professional indemnity insurance
PI insurance protects you against claims arising from errors, omissions, or negligent advice in your professional work. If a client suffers financial loss because of a mistake in your code, a flawed architectural decision, or incorrect data analysis, PI insurance covers the legal costs and any damages awarded. This is the most important insurance for IT contractors and is almost universally required by agencies and clients. Typical cover levels range from £1 million to £5 million.
Public liability insurance
Public liability insurance covers claims from third parties for injury or property damage caused by your business activities. If you spill coffee on a client's server (unlikely but not impossible) or someone trips over your laptop bag in a meeting room, this policy covers the claim. Typical cover is £1 million to £5 million.
Employer's liability insurance
Technically, you need employer's liability insurance if your limited company has any employees, including yourself as a director. Some agencies require it even if you are the sole director. Cover of £10 million is standard and legally required.
Typical costs
Specialist contractor insurance providers bundle all three policies into a single package. Annual premiums typically range from £300 to £500 depending on your profession, turnover, and cover levels. Companies like Kingsbridge, Qdos, and Caunce O'Hara specialise in contractor insurance and offer competitive packages.
IR35 insurance
Some providers offer IR35 contract review services and tax investigation insurance as add-ons. Tax investigation insurance covers your professional fees if HMRC opens an enquiry into your IR35 status. Given the potential costs of defending an IR35 investigation, this add-on is worth considering.