Contractor insurance: what you need and what it costs
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Three covers matter to contractors; the rest is upsell. Client contracts usually dictate the first two.
The three
- Professional indemnity (PI): the one that matters. £1m–£2m limits are the contract norm; IT/finance clients often demand £5m. Driven by "your work caused us loss" claims.
- Public liability (PL): £1m–£5m; mostly for on-site work (construction-adjacent roles: effectively mandatory).
- IR35 investigation cover: legal costs + representation if HMRC opens an investigation. Modest premiums; buy it in your first outside-IR35 year, not your fifth.
Ballpark costs (2026)
For a single-director IT contractor: combined PI+PL packages commonly run a few hundred pounds a year; IR35 legal cover adds a small top-up. Get quotes — but treat any "tax investigation insurance" bundled with HMRC-fee-only cover as marketing: ask what the legal defence limit is.
Context: employers' liability is your umbrella's problem, not yours; gadgets/EI cover is optional. The contract's insurance clause always wins — send it to the broker before signing, and check the assignment's IR35 status on our evidence guide first.
Reading the client's insurance clause
Contract clauses name limits and sometimes named-insured requirements: "PI £2m per claim, £3m aggregate, including cyber extension" — send the clause verbatim to your broker. The common trap is aggregate limits across a portfolio (two concurrent £2m contracts can exhaust a £2m aggregate), fixed by an upsized aggregate for trivial cost if flagged before inception.
What IR35 investigation cover actually buys
Legal representation and HMRC enquiry fees — not the tax itself. If an assessment lands, defence costs routinely run five figures; the policy pays those, and the specialist firms behind the better policies win more cases. It does not pay the disputed NI — pricing that risk is why evidence-checking upfront beats insuring carelessness.
Umbrella workers: what's already covered
Employer's liability sits with the umbrella; PI sometimes bundles in. Check before buying duplicates — then insure only what the umbrella's certificate doesn't show.
Cyber and professional indemnity: the modern boundary
For contractors touching data or systems, the PI market now asks cyber questions (breach costs, notification duties) and some clients write cyber extensions into the PI clause. If your engagement touches personal data at scale, price the extension before the client asks — the retrofit conversation mid-onboarding wastes a start date. Generic "IT contractor" cover without the clause usually suffices below that scale.
Claims: what actually happens
Notify the broker in writing the day you become aware of a circumstance — policies are claims-made, so late notification voids cover that should have responded. The insurer appoints the solicitor, controls defence spend, and settles; your duty is cooperation and honesty, not advocacy. This is why the policy's "legal defence limit" matters more than its premium when comparing quotes.
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