Insurance for self-employed people: Everything you need to know
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Posted: Fri 19th Jun 2020
If you're self-employed, any mistake you make – even if it's a relatively minor one – could end up being costly to your business. Consequently, you need to have the right insurance in place to cover your business against someone making a claim.
In this blog, we take you through contractors' insurance: what it is and why you might need it.
Why do I need insurance if I'm self employed?
While insurance may not be the most glamorous business expense, it's an essential one. Without it, your business could be held accountable if a client suffers any sort of financial loss.
For example, if you have a particularly stressful day and make a serious oversight on the job that ends up losing your client a substantial amount of money, that same client could exercise their legal right to make a claim to cover the money they've lost.
Without the right insurance in place, any compensation awarded as the result of this claim would come from you or your business.
It's also worth noting that many clients will ask you to present proof that you're insured before they agree to work with you. So, making sure that you're covered is vital from a business perspective as well.
What insurance is available?
When it comes to insurance options, there are three crucial products:
Public liability insurance
Employers' liability insurance
While these insurance products all cover your business against legal action and compensation awards to other parties, each is actually designed to offer your business different forms of protection.
What type of cover do I need?
This will largely depend on the nature of your business. Before you take out a policy, take some time to think about what your business needs.
For example, if you have employees, you'll need different insurance than if you're a sole trader or lone consultant. Let's look at some examples in relation to self-employed professionals.
You provide professional advice or consultancy work
In this case, you'll need to take out professional indemnity insurance.
Professional indemnity is one of the most common types of business and will cover the cost of defending your business against claims of negligent advice which has caused a client some financial loss.
For example, if an architect was commissioned to plan and design a new development but failed to get the correct planning permission, the client commissioning the new building development would be entitled to make a claim against the architect to recoup any money they may been lost as a result of having to arrange for the correct planning permission.
You visit a client's premises, or they visit yours
Public liability insurance will cover your business against claims made against your company by a third party for personal injury or property damage.
For example, if a client visits your office or working space, trips over a loose wire and seriously injures themselves as a result, a public liability policy would cover any compensation they're awarded as a result of a claim they make against your business.
Public liability insurance will also cover your business if you accidentally damage your client's business premises or cause personal injury while visiting them.
You employ staff
If you have employees, you'll need to take out employers' liability insurance to make sure anyone who works for you is covered for any personal injury or illness they may suffer while working for you.
What level of cover do I need?
Many contractors will be insured for around £1 million professional indemnity insurance and £1 million public liability insurance. But the exact amount of cover you need will depend heavily on the type of work you do.
The exception to this is employers' liability insurance, as any business that employs workers must have at least £5 million of cover.
What does the law say about insurance?
Strictly speaking, the only insurance product a business must have, by law, is employers' liability insurance.
However, it's worth noting that while professional indemnity and public liability insurance aren't a legal requirement for businesses, they could be seen as an important indication of quality.
Having the correct insurance in place shows that you're a professional business that takes considerations such as health and safety very seriously. That helps to potential clients' minds at ease.
By not taking out professional indemnity insurance, you may even be running the risk of losing out on a contract. Many organisations – such as government bodies (for example, local councils) and larger corporate businesses – will usually ask contractors and small businesses to prove that they have professional indemnity insurance before they agree to work with them.
How do I make sure I'm covered before I take on a new job?
There is the temptation to think that once you've taken out an insurance policy, you're covered for good.
While this certainly can be the case for smaller businesses that serve a specific clientele, for contractors it might be necessary to alter your cover when agreeing a new contract.
If you begin working for a larger client, for example, you'll most likely need a higher level of professional indemnity cover.
So, before you agree to take on a new contract, check with both your client and your insurer to make sure the level of cover you have is adequate.
Don't worry if it isn't, as most insurers will let you extend your cover for an extra premium.
How do I stop things from going wrong?
While it's important to make sure that your business is adequately covered, it's equally important that you do as much as you can to prevent mistakes and professional mishaps from happening at all. As the saying goes: an ounce of prevention is worth a pound of cure.
These measures can be anything from:
regularly checking your office or workspace for potential health and safety risks
frequently saving any data or digital-based work you're doing
upgrading your business's antivirus software to protect computers and IT systems
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