IT Contractor Insurance Explained

 Contractor insurance is a vital commodity for any UK contractor, their professional position requiring adequate protection against potentially devastating financial outcomes. Contractor insurance policies are adept products designed for a number of eventualities and are a good example of specifically designed small business insurance.


Contractors are individuals who provide their professional services through limited companies on contract bases hired by larger firms. Unlike regular employees, contractors work for themselves, and this fact is something that can create both advantages and certain disadvantages on the contractor. Being self-employed, contractors are not employed by the company that they may be working for, and thus losing out on the many benefits and 'perks' that come with being in employment. These advantages could range from sick pay and holidays to necessary protection insurance.

commercial contractors

The fact that contractors are not covered by any overhanging insurance umbrella means that they are very vulnerable when it comes to potential financial loss due to accident or error. Because of this, a large number of tailor made contractor insurance products exist, to protect, indemnify and cover contractors should the worst happen. Not only are contractors not covered by any employer's insurance, but as they are the owners, shareholders and workers for their limited companies, they are 100% liable in any case that may result in financial loss.


With contractors being in full charge of their own limited companies, this further reiterates the importance of insurance for contractors, making it a vital precaution as well as necessary cover. Some professionals may take out their own personal insurances on top of any provided by an employer, as a failsafe should any serious error occur that they may be liable for, but this situation is rare however and usually only happens in extremely high risk professions. For contractors on the other hand, this is compulsory, and most require purchasing certain insurance products before they can even get work.


Most contractors will have certain contractual obligations when signing up for a new contract and working at a new company. These may include providing an adequate substitute or a guarantee of service, but most often, contractor insurance is the main contractual requirement. Not only a vital protection, but contractor insurance policies themselves are compulsory with certain contracting professions. PI Insurance is a frequent compulsory insurance for contractors, but there are a number of products that contractors must purchase before they can actually work as a contractor.


The benefits that contractors gain from however are very important to the profession, their largest highlight being that they are taxed at a lower rate than average PAYE employees. Because contractors are taxed less by HMRC, they actually require insurance to protect them from any tax related issues, and most commonly from a HMRC contractor tax legislation called IR35. IR35 contractor insurance is a highly recommended product, and is yet another reason why contractor insurance is so important to self-employed company workers.


Insurance for contractors exists to cover a huge number of eventualities, and because of their high risk professional status, contractor insurance is very popular.

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