Why do contractors need insurance cover?
January 18, 2012 
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Working for yourself can have many advantages. You are essentially your own boss and have complete control over the company, meaning you choose when you work, who for and how much you charge. You will not need to answer to anyone and any profit the business makes goes straight into your pocket to benefit you.
There are also downsides to contracting. Being completely liable for what happens in the business means that should anything go wrong it is down to you and only you to solve the problem. Whether this is a client who will not pay up to a complaint against your business, it is necessary to protect yourself against any possible attacks as there is no company for you to hide behind when it is your company.
Owning a business (even if you are the only person in it) has financial and legal obligations and responsibilities which can spell the end for your business if not handled well. Insuring yourself against any claims from disgruntled clients is the first step to securing yourself against this happening. Should a client make a claim against you for a mistake made by you which cost them money, insurance can help you pay for any legal expenses, as well as pay the client if the mistake really was your fault and needs to be rectified.
A high rate of clients will require you to be covered by at least the most basic insurance before they will even sign a contract with you anyway, as this covers their backs as well as yours.
The most important types of insurance to look at is:
Professional Indemnity Insurance – this protects you against a breach of contract (whether intentional or unintentional) that a client may want to sue for, as well as any loss of client documents, damage to or loss of client data and defamation claims. Owning this type of insurance means that, however unlikely it may seem, any negligence by you which could cost your business an extraordinary amount of money, or even the business itself, will be covered by the insurance and help you out of a difficult situation.
With IR35, it’s no longer feasable to have a company. Besides employers want to pay as little as possible and one way is to pay as much as their perm staff (we shall bypass the fact that contractors dont get sick pay, holidays PLUS have to pay the employers part of NI out of the same rate as perm staff). So…the safest way is to go via an umbrella, and its they who provide indemnity cover as part of your weekly pay to them (also coming out of the rate that perm staff are paid).