Contractors Insurance Explained

Working as a contractor can be difficult enough while worrying about things such as profit and loss, being paid on time and beating targets. However, there is also a legal risk to any firm which works on a consultancy or contractual basis; in that they are open to legal action should they make a mistake which results in a client losing money. Some simple insurance policies can help take away some of this risk, and can provide peace of mind should a firm ever face a legal claim. Contractors insurance also need not be overly complicated, and can also be good value.

Many contractors choose professional indemnity insurance, which is a type of cover designed to kick in if a firm ever faces a legal claim following a mistake, omission, or act of negligence. If a building contractor is hired by a larger company to complete the building job, which then turns out to be inadequate and even unsafe due to an error, the company may lose money and seek to recover their costs from the contractor.

A professional indemnity policy would cover the legal costs of defending the claim. It does not normally matter whether or not the claim itself is invalid or successful and will protect a claim not just against legal bills from a solicitor for their services, but also for any compensation which may be awarded to a successful claimant.

As with other types of cover, an excess will apply, meaning the policy holder will have to pick up an initial fee before the insurance kicks in. This can be a few hundred pounds up to thousands, and is agreed at the start of a policy.

Different levels of cover are also available as some contractors will need a greater amount of protection than others. For example, a firm dealing with large multinational clients and working on large projects may want protection for legal bills to a much higher amount than someone working on a small scale with a small number of employees.

Indemnity insurers also normally include protection should a contractor be sued for breach of copyright or confidence, or even if an employee behaves dishonestly, resulting in a legal claim, i.e. should the employee steal from a client.

Public liability insurance is also a possible part of a contractor's insurance policy, and is different to indemnity. It will help protect a firm if they face a legal claim from a member of the public who has suffered an injury or illness, or even an action which results from a death, which occurs as a result of the company's work.

Again public liability will help pay for the cost of defending such a case and will even cover any compensation awarded in the event of a successful claim, again up to certain limits.

Contractors insurance can therefore include protection from some common legal pitfalls and guards against some of the more unexpected events as opposed to things like fire or theft. A legal wrangle can potentially be even more stressful and financially damaging so many companies see the right protection as essential.

Liz Willder is from Tescocompare.com, the insurance comparison site where you can compare business insurance policy features and prices.