In last week’s blog article, we’ve discussed how contractors should plan for the retirement plan. Insurance is another area contractors need to think about. As a sole contractor, you are your business – without you, you can’t earn money.
That means any period of illness or absence comes at your own expense, unless provision is in place. It means that you are liable for damages if anything goes wrong, and this financial responsibility is enough to land even a successful contractor in hot water.
Insurance is one of those business expenses many contractors feel they can do without. But on both a professional and personal level, having the right type and extent of cover in place is key to maintaining peace of mind, whatever happens in the future.
As a contractor, you will be legally required to have some form of insurance in place. The most common are set out below.
Professional Indemnity Insurance covers the integrity of your work as a professional contractor, and provides for negligence resulting in damages to your employer or client. PIL covers your back in the event you are sued for negligence, error or omission in the course of your work.
Public liability insurance is available to cover your liability in many circumstances – such as liability to employees, to members of the public and to your clients. Make sure the value of insurance cover you are taking out is enough to protect you.
Professional indemnity and public liability insurance are usually compulsory for contractors if you carry out any work for an established company before the contract starts. Depending on the employer, the amount you are required to insure may differ, although commonly, the minimum coverage level for both is £1m.
Business property insurance protects you against damages to any premises you operate from, and ensures the assets of your business are covered against any possible losses. Income protection policies provide coverage against losses to your income as a result of illness, accident, or some other insured basis. This type of insurance pays out when you are otherwise unable to earn money, provided the reason for your absence is covered by the policy. This is a lifeline for many contractors, who are just as susceptible as anyone else to injury or periods of absence.
Health InsuranceFor some contractors, health and medical insurance is important – both for safeguarding their own wellbeing, and for covering the medical costs of others that you may become liable for through the course of the work you do.
With all types of insurance, you will be charged a premium, and usually this can be paid at monthly intervals to keep your cover active.
Failure to make payments on your insurance will leave you without the cover you anticipate. This is playing with fire, and you may even find it difficult to obtain further coverage in future when the time comes for renewal.
Whether its health insurance for yourself or others, or simply general liability insurance for your contracting work, make sure you are up-to-date with your premiums to stay safely covered at all times.
What To Look For When Buying Insurance
Insurance is often seen as a commodity cost – the cheapest provider wins.
But not all insurance policies and providers are the same. In fact, different policies will have radically different terms of cover, exclusions and conditions. You need to be fully aware of the exact scope of your cover before committing to one provider – the cheapest isn’t always the best. The last thing you want, in the event of a crisis, is to think you are insured, only to find your cover doesn’t extend as far as you thought.
When buying insurance of any kind, you need to be sure:
– you have the coverage you need – you know the exclusions and exemptions from cover – you can afford to pay the premiums – you are aware of any excess, or other clauses that may affect your rights – you have read the policy document, and you understand what you have bought
Buying insurance can be tricky, especially for those new to contracting. Yet it can be the difference between trading safely with the protection you need to weather any storm, and playing with fire in the hope that you will never fall victim to any potential business disaster.
As a contractor, your sole source of income depends on your ability to find and perform work. Without insurance, you are gambling against your livelihood – a far from ideal situation for those with families and other commitments.
Don’t rush in to buying insurance, and feel free to speak to an independent financial advisor if you feel you would benefit from a further discussion about your options. It’s well worth getting the right cover in place as soon as possible, so you can rest easy in the knowledge that you’re protected.
Contracting might sound like living the dream – dictating your own hours, rates and projects – but working for yourself also means navigating the worlds of tax, insurance, pensions and mortgages on your own. For those who have always worked as a full-time member of an organisation’s staff, where the accounts and HR teams took care of everything for you, it can be extremely daunting to tackle on your own.
Your team at iContract is always on hand to guide you through the process of financial management for your contracting business. Contracting may be your chance to go out on your own, but with iContract, it doesn’t mean you are alone.
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