Why do I need insurance if I’m a contractor running my own limited company?

Gill Arnold

Gill Arnold

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By Simon Nixon and Gill Arnold

This is a question we at Futureheads are very often asked by the talented professionals we place on contract assignments. We’re also told that not many of our competitors ask their contractors to have business insurance, so it’s important that we explain why we take the stance we do, which is to see proof of business insurance for all limited company contractors working through Futureheads.

Often, it’s quite simply a contractual requirement of the end client we’re working with that all limited company contractors supplied to them have professional indemnity, public or products liability and employer’s liability insurance to certain specified levels. End of. Even if that’s not a specific requirement of our client, it’s our duty as a professional recruiter to ensure that both our company and yours are adequately protected in the event that something goes wrong when you are working on an assignment. When you’re supplying your services through a limited company, you are engaged as a business, and your business, like any other, needs to insure itself against risk.

Everyone likes a second opinion though, right? Especially before spending hard-earned money on what could be perceived as non-essential insurance. So instead of giving you my view, here’s the low-down from someone in exactly the same position as you – a limited company contractor, Simon Nixon:

If you’re reading this and wondering what the heck it’s about, let’s first do a spot check to make sure I’m not wasting your time.

• You are a contractor.

• You are running your own Ltd. company.

• You are responsible for finding your own work either via a recruiter or direct to your network.

• You make ok/good money from a market willing to pay handsome day rates.

• You have no money left at the end of the month because you spend it all on sex, drugs and rock & roll.

The last one is not true (mostly) but we will come back to that shortly. Point being, you should have ‘some’ spare money at the end of the month. So, I am one of the above. One of you. Not a recruiter. I’m a consultant in my second round of freelancing. Older, wiser, more experienced and at least a stone heavier. I’ve known the team at Futureheads for years. So why am I writing a blog post for them? I’ll answer that by asking you a(nother) question…

What’s the difference between Insurance and Assurance?

Not exactly a show-stopper round the dinner table, but go on, have a go (without Googling it). A strange question you might think, but actually they mean two very different things and are often mistakenly used out of context (almost as often as Java and Javascript, but let’s not go there).

Assurance is a pay-out against something that will happen. If you have Life Assurance for example, it is inevitable that it will definitely pay out one day (sorry to break it to you).

Insurance on the other hand is intended to protect us against things that ‘might’ happen such as holiday insurance or home insurance for fire, break-ins and suchlike.

If, like me, you have been unfortunate enough to have needed to make a claim against something like that, you’ll remember how glad you were you took out the policy. On the flip-side, most of us don’t look at our Direct Debits, moaning and resenting paying out that small sum of money each month for a policy we may rarely or never need to act upon. It’s there if we need it. A safeguard.

So why is it then that so few of us have any insurance to protect us in our place of work?

Let’s start by busting a few myths and stating the obvious.

• It’s not expensive.

• We can afford it (assuming we keep a bit back for those rock & roll trappings).

• More and more clients are demanding it. More like motor insurance, it’s getting to a point where you almost don’t have a choice.

• If you get into a situation where you need the insurance policy to protect you and you don’t have it, it will most likely take you under in fees and potential pay-outs and liability.

...and the kicker is that I ‘think’ only 1 in 20 contractors have it.

So what is it and what does it cover?

So let me explain this murky world to you in simple terms. It certainly helped me when someone was kind enough to jargon-bust it for me.

There are three types of insurance, Public (or Products) Liability, Employer’s Liability and Professional Indemnity.

Public Liability covers you (and up to 5 people working for you)…

• If you break any kit in someone else’s office

• Or if someone drops a printer on your foot

• If something in your home office blows-up

Basically it’s you covered in the environment of your work. Your ‘client’ is already taking this insurance out for THEIR employees. You are not covered. You are an employer. Time to wake up.

Employer’s Liability covers claims made against you by employees or subcontractors of your company. If you’re a one man band then this may not be relevant or required, but if you do employ anyone else (i.e. anyone else works through your company) then it’s a legal requirement to have this insurance. If you have a right to substitution clause in your contract, then it’s a good idea to cover yourself. On the up side, this sort of insurance is normally inexpensive to buy.

Professional Liability covers you…

• If a business brings a claim against you for negligence

• If your work causes a financial loss to your client

• As a result of your work, they lose the client

• If you need help with legal and court costs

This is the part that could put you at massive financial risk if it ever happened. And it does happen. So why aren’t you covered? Why take the risk? It can’t be about the money because you can have both Public and Professional cover valued up to £1M for each for just over £30 a month. Which hopefully leaves a bit of cash left each month to put towards that rock & roll lifestyle…


If this has piqued your interest, feel free to contact Simon to discuss the contractor viewpoint in more detail or Gill with any questions about insurance requirements when working with Futureheads. Some further tips on setting yourself up as a contractor are available here, courtesy of my fellow Futurehead Toby Thwaites