Starting out as a software contractor in the UK can feel confusing, especially when it comes to insurance. This guide will walk you through everything you need to know about protecting yourself and your business with the right insurance coverage.
What Insurance Do Software Contractors Need?
As a software contractor, you'll primarily need two main types of insurance. Let's explore each one and why you might need it.
Professional Indemnity Insurance (PI)
Think of Professional Indemnity insurance as your safety net for professional mistakes. If you accidentally introduce a bug that causes your client's website to crash, or if your code leads to a security breach, this insurance covers the resulting costs and legal fees.
Most clients require contractors to have at least £1 million in PI coverage. This isn't just about following rules – it's about protecting your business from potentially devastating financial claims.
Public Liability Insurance (PL)
Public Liability insurance comes into play when you interact with people or property in person. Imagine you're working at a client's office and accidentally spill coffee on their expensive server equipment. PL insurance would cover the damage.
If you work entirely remotely, you might not need PL insurance. However, if you ever meet clients in person or work on-site, most contracts will require at least £1 million in coverage.
How Much Does Contractor Insurance Cost?
Insurance costs are surprisingly affordable for most contractors. Here's what you can expect:
A combined Professional Indemnity and Public Liability insurance package typically costs between £230 and £315 per year. This cost varies based on your annual turnover – the more you earn, the higher your premium might be.
The good news? These insurance costs are tax-deductible business expenses when you operate through a limited company.
Getting Started with Insurance
When Should You Get Insurance?
Don't wait until the last minute. Many clients won't let you start work without valid insurance certificates in place. Get your insurance sorted before you begin looking for contracts.
Choosing an Insurance Provider
The UK has several reputable insurance providers specializing in contractor coverage. Popular options include:
- Hiscox: Known for quick certificate turnaround and competitive combined packages
- Qdos Contractor: Offers flexible monthly payment options
- Kingsbridge: Specializes in comprehensive contractor packages
- WithJack: Popular among digital professionals
Special Considerations for Remote Workers
The rise of remote work has changed insurance needs for many contractors. If you work exclusively from home, you might be able to skip Public Liability insurance. However, Professional Indemnity insurance remains essential regardless of your work location.
Tips for New Contractors
- Start with the basics: Get Professional Indemnity insurance before anything else.
- Keep your certificates handy: Clients and agencies often need these during the contract setup process.
- Review coverage annually: As your business grows, you might need to increase your coverage limits.
- Document everything: Keep records of your insurance policies and any claims for at least six years.
Additional Coverage to Consider
As your contracting business grows, you might want to consider additional protection:
Tax Investigation Insurance
This coverage helps with the costs of HMRC investigations. Some contractors get this through membership in professional bodies like IPSE.
IR35 Insurance
If you work outside IR35, specific insurance can protect you against tax status investigations. This has become increasingly important with recent tax legislation changes.
Final Thoughts
Insurance might seem like just another expense, but it's an essential investment in your contracting business. The right coverage protects your financial future and opens doors to better contracts. Start with the basics – Professional Indemnity insurance – and add other coverage types as your business needs evolve.
Remember: The goal isn't just to tick boxes for client requirements. The right insurance coverage gives you peace of mind to focus on what you do best – delivering great software solutions for your clients.
Frequently Asked Questions
Do I need insurance before I start looking for contracts?
Yes, most clients will require proof of insurance before you can start work. Get your insurance in place early in your contracting journey.
Can I change my coverage levels later?
Yes, you can adjust your coverage as your needs change. Review your insurance annually or when taking on larger contracts.
What happens if I work both remotely and on-site?
If there's any chance you'll work on-site, it's best to have both Professional Indemnity and Public Liability insurance.
Is insurance tax-deductible?
Yes, contractor insurance is a legitimate business expense that can be deducted from your company's tax bill.
