Contractors are technically self-employed professionals who work via a previously set up limited company and are hired by larger firms for the services that their limited company provides. This basically means that an IT contractor for example would set up their own company that they then work for and would offer out the limited company and the service it provides to a larger firm. The firm would subsequently not be hiring the contractor as an employee; they would in fact be hiring the limited company on a contract based term.
Because of this system that contractors work by, a contractor is not an employee, and with this comes a number of differences to their professional status as opposed to an average employed worker. There are a number of factors that are greatly affected because of this as contractors do not benefit from the advantages and perks that come with being employed by a company. Insurance is one of these advantages that contractors lack because as they are their own company owner and boss in a sense, if any misfortune or error were to occur, they would be held fully liable to any claims or damages.
Contractors are fully liable for their own actions and the actions of their limited company, thus making them financially vulnerable when considering the risks that face contractors in the professional world. From sick pay to professional indemnity, contractors must insure themselves for any eventuality and any danger. Thankfully, contractor insurance exists and is specifically designed and tailored with contractors in mind, covering them from almost all potential outcomes facing self-employed professionals today.
Contractor insurance is vital within the contracting profession, with every contractor purchasing the relevant products to their line of work. Obviously a product such as employer's liability insurance would only apply to those contractors who employ within their limited company, but a far more general product such as professional indemnity insurance is purchased across the board, as its benefits are vast.
Many forms of contractor insurance (such as PI Insurance) are in fact often a contractual requirement within the clause of a job contract and thus cannot be overlooked by any contractor. The fact that jobs for contractors often demand a contractor is covered by necessary insurance highlights the need for contractor specific insurance, not just as a professional safety net.
As well as covering contractors from incidents and misfortunes that would result in financial loss and damage, a number of contractor insurance policies work in favour of professional status regarding a contractor's tax position. The HMRC is ever increasing its pressure on contractor's statuses, and by having certain insurance policies in place is often looked upon by the tax office as firm grounds of proving professional credibility.
Along with providing necessary cover protecting a number of eventualities, contractor insurance proves that a contractor is reliable to a potential company and secures their status as a reputable contractor within their own right.