For all the financial and working advantages involved with contracting through personal service company, there are certain responsibilities and obligations that go with it. Clients hire contractors primarily for their expertise. They see you as an authority in your chosen field and place their trust and confidence in the decisions you make and any advice you provide.
What were to happen then if you did something wrong that had financial consequences for your client?
If you operate through a reputable umbrella company, you will be protected under their insurance policies, however, this is not the case for limited company contractors.
That means you will need to invest in various insurance policies to ensure you have adequate protection in place. Many clients require contractors to have insurance in place before entering into agreements, so it is important you understand which policies you need and how they provide a valuable safety net.
Professional indemnity insurance
Professional indemnity insurance is designed to protect you in the event that your client makes a claim for loss or damage resulting from mistakes or negligence on your part. As your client will be engaging you for your expertise and knowledge, professional indemnity insurance provides a vital safety net and in many professions it is a regulatory requirement.
Given the fact that claims against you can run into hundreds of thousands of pounds, professional indemnity insurance is something you should give serious consideration to, even if your client does not stipulate that you need to have it in place.
Public liability insurance
This is another important insurance product.
Public liability insurance protects you in the event of claims made by third parties for damage to property or for illness or injuries suffered as a result of your alleged negligence. Even if you have no dealings with the public, this cover can still be useful and many limited company contractors take out such policies.
Personal accident insurance
Personal accident insurance will protect you should you suffer an accident or fall ill on site or while travelling to a site and are unable to return to work afterwards as a result. Such a policy would also cover members of staff who suffered an injury while at work.
If your business would struggle to survive in the event of your prolonged absence, personal accident insurance is something you need to consider.
Employer’s liability insurance
If you employ people, you are required by law to have employer’s liability insurance in place. This needs to cover you for at least £5 million.
Were an employee to make a claim against you for injuries suffered at work, the policy would cover your legal fees and compensation costs.
When it comes to purchasing insurance policies, you should follow the same practices you would were you buying insurance for your car or home.
You need to ascertain what level of cover you need so you can shop around and compare policies from different providers. While cost is an obvious consideration, you should adopt a value-for-money approach as opposed to looking for the cheapest policies you can find.
This is because cheaper policies more often than not only provide the bare minimum protection and can often be found wanting. Thinking from a value-for-money perspective will help you find a policy that covers you in various situations at a price you can afford.