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Running a Limited Company has its own share of risks. Apart from business risks, there are many other risks such as losses to clients because of your actions. To counter these risks, there are many business insurance products designed for Limited Companies. In this article of "Path of Education for New Contractors", we look at the different kinds of insurance for Limited Companies.
Professional Indemnity Insurance (PII) is to cover any losses caused to your client(s) by your actions. PII also covers any legal costs if a client makes a claim for recovery of any such losses. Examples of losses covered by professional indemnity insurance are; loss of any important documents, any losses due to carelessness on your part, any violation of clients intellectual property rights, etc. Most contracts make it compulsory for contractors to have PII. Some examples of professionals who require PII more than others are engineers, architects, accountants, financial consultants, IT consultants, etc.
Example 1: AXA provides PII with different cover levels of up to £5 million. AXA's PII also covers any legal defence costs, including fees for solicitors. Additionally, AXA has customized policy covers for different professions such as accountants, architects, business consultants, creative professionals, and so on. The Premium is dependent on several factors like the age of business, annual revenues, number of people employed, etc.
Directors and Officers (D&O) Liability Insurance covers the Directors and key officers of a company for any claims made towards them. While the liability of Directors in a Limited Company is limited to their share in the company, at times certain affected parties may also sue the Directors along with the company. By taking D&O insurance, Directors can protect themselves from potential penalties. Some examples of D&O claims are listed below.
Example 2: Zurich Insurance offers Directors and Officers Liability Insurance for limited companies with covers available from £250,000 to £2,000,000. For companies with a turnover of up to £1 million, premiums start from £450.
Public Liability Insurance cover any damages caused by your business to your clients, your visitors or even general public. An example of public liability insurance coming into play is when a visitor gets hurt in your office premises due to an accident and makes a claim. Public Liability Insurance also covers any legal costs incurred whilst defending claims.
Example 3: Hiscox offers public liability insurance for covering any injuries to clients, contractors or any general public. In addition, this insurance covers legal fees of up to £100,000 for defending of claims.
Employers Liability Insurance is to cover payment of damages and legal fees if employees face injury or sickness because of working for your business. For example, if an employee gets injured because of a faulty equipment in your premises, you will be covered for such losses by employer's liability insurance. Any company that employs staff must compulsorily have employers liability insurance, or they are liable to be fined. If you are the only Director in your Limited Company, and you own more than 50% of a share in the company, you are exempted from having employer's liability insurance.
Example 4: AXA's employers liability insurance provides protection of up to £10 million for any compensation claims and legal costs incurred due to any harm to employees. AXA's insurance also covers legal costs for defending any legal action due to a violation of health and safety law. For temporary workers, the insurance includes free cover of up to 50 days. Also included is a compensation of £250 per day if you have to attend court due to any claims related to employer's liability.
Office insurance is for protecting the office and its contents from events such as fire, floods, theft, etc. Office insurance includes cover for both the building and its contents. Some office insurance products also provide cover for home office. In addition to office insurance, you should consider business interruption insurance for lost income if your office is temporarily unavailable due to fire or floods.
Example 5: Hiscox office insurance includes cover of up to £200,000 for any damage to your office or any loss, theft or damage to office contents. The policy provides cover of up to £5,000 for loss of data and up to £5,000 for loss of any personal property of visitors or employees. Additionally, Hiscox offers business interruption insurance, which compensates for income lost due to unforeseen events making the office unavailable for work. Business interruption also includes nearly 30% of the sum insured for costs like a temporary office.
E-Risks insurance is for businesses dependent on computers and the internet. Examples of e-risks are computer viruses or hacking of systems, which can stop a business from operating, or lead to loss of valuable data.
Example 6: ProSure Insurance Services offers E-Risks insurance which protects internet-based businesses from any losses caused due to network failures, viruses, hackers and electronic ID theft.
Equipment Insurance is for covering the replacement cost of your business equipment like laptops, printers, projectors, business mobile phones, etc. Typically, such equipment is expensive to replace, but with equipment insurance you can be protected if there is any loss of business equipment due to theft or damage.
Example 7: Hiscox offers a cover for portable equipment as part of its office insurance products. The insurance covers all key items like laptops, hand-held mobile technology, mobile phones, printers, projectors, etc.
Legal Expenses Insurance covers against any litigation related expenses. As a contractor, you are always at the risk of some legal trouble. This could be because one of your contracts may come inside IR35, or you may want to sue a recruitment agency to recover your money. Any legal dispute can be very expensive. You can avoid this situation by taking an insurance cover for legal expenses.
Example 8: Ageas offers a legal expenses cover for all kinds of legal disputes. Examples of expenses covered are any costs incurred in defending a tax investigation case, or defence costs related to allegations of not following the laws.
Data protection or Cyber Liability Insurance is perfect for businesses dealing with personal data of their clients. In case there's any loss, theft or distortion of data, either accidentally or because of foul play, this could lead to huge losses in legal expenses. A data protection insurance policy can cover you against costly lawsuits.
Tax, PAYE and VAT protection insurance is a specialized cover for any legal costs and accountant's fees incurred on any investigation by the Her Majesty's Revenues and Customs (HMRC). An example of HMRC's investigations is inquiries into the accounts or tax returns of a Limited Company. Another example would be cross-tax enquiries where HMRC investigates both the contractor and the company for all taxes like personal income tax, corporation tax, VAT, and PAYE.
Apart from the above, there are a few other types of insurance available for contractors. Like for businesses with more than one employee, employment disputes insurance covers any legal expenses incurred towards defending any civil or criminal court action related to employees. Apart from this, contractors can get insurance for protecting their property and licenses and also take protection for any bodily injury.
Limited companies have many options when it comes to choosing business insurance. The cost of business insurance for contractors is dependent on the amount of cover needed, the annual revenues of the contractor's Limited Company, and the number of employees.
Apart from individual policies, there are also comprehensive policies that cover all the insurances listed above. Before shortlisting a provider, we recommend you to take quotes from different providers and understand the risks covered in each policy.
For all the business insurance products listed above, you can check the services of Contractor Financials, who have tied up with Caunce O'Hara, a leading chartered insurance broker. You can get sound professional advice on the products best suited for your requirements.
You may also find the following contractor calculators useful for your salary and tax calculations.