Business insurance: what a limited company contractor needs to know

"You don’t need insurance… until you really, really do."

That’s what an old client of mine once said — just after he lost £40,000 in a contract dispute and found out his professional indemnity insurance had expired. He was a solo IT contractor, working from home, doing everything by the book… except for checking his insurance.

He thought, like many contractors do, that he didn’t need cover because nothing had gone wrong before.

But when things do go wrong — an unhappy client, a mistake in your work, or even just a spilt coffee on a client's laptop — it can turn your world upside down.

So, whether you’re just setting up your limited company or you've been running one for years, here’s what you really need to know about business insurance.

1. What insurance do you actually need as a contractor?

Let’s cut through the noise. Most limited company contractors only need a few key policies:

- Professional indemnity insurance – This is the big one. It covers you if a client claims you’ve made a mistake that cost them money. If you give advice, write code, or handle data — this is for you.

- Public liability insurance – If you meet clients in person or work at their site, this protects you if someone is injured or property is damaged.

- Employer’s liability insurance – Legally required if you have any employees. That includes part-timers or temps. (Even if it's your partner helping out occasionally!)

- Contractors all risk insurance – Mostly for construction or engineering contractors. If you’re in IT or consultancy, you probably don’t need this.

Here’s what I tell people who aren’t sure: think about where you work, who you work with, and what could go wrong. That usually points to the right cover.

2. Is insurance actually required by law?

In most cases, no. The only policy that’s legally required for limited companies is employer’s liability insurance — and only if you employ someone.

But here’s the catch: even if it’s not a legal must, many clients won’t hire you without it. Some contracts explicitly state you need to have professional indemnity and public liability in place before signing.

I once lost a contract with a large retailer because my PI insurance had lapsed and I hadn’t noticed. They didn’t care that I’d never made a claim — they just needed the certificate.

Lesson learned: set a reminder for your policy renewal dates. Always.

3. How much does it cost?

It depends.

A typical IT contractor might pay £200 to £500 per year for PI insurance. Public liability is often less — around £100 to £300 annually. If you bundle them, you can sometimes get a discount.

If you're just starting out, it's tempting to go with the cheapest option. But check the limits of cover and what’s actually included. Some policies don’t cover overseas work. Others exclude subcontractors.

I always say: don’t buy the cheapest policy — buy the right one.

4. Can I get one policy to cover everything?

Yes! Many insurers offer combined packages that include public liability, professional indemnity, and even employer’s liability if you need it. They're often easier to manage and cost-effective.

Look for “contractor packages” or “business bundles” on insurer websites. If you’re unsure, speak to a broker. It might cost a bit more upfront, but they’ll help tailor the policy to what you actually need.

5. What if I work from home?

Good question. Lots of contractors do.

If you only work from home and never meet clients or handle physical goods, public liability might seem unnecessary. But consider this: if a courier trips over your front step delivering client equipment, you could still be liable.

Also, your home contents insurance might not cover business equipment — especially if it's owned by your limited company.

I’ve got a friend who had her laptop stolen during a break-in. Her home insurer refused to pay out because it was registered to the company, not her. She now has separate cover through her contractor policy.

6. Do I really need PI insurance? What does it cover?

If you give advice, manage projects, design systems, or do anything where a mistake could cost your client money — yes. You need it.

Professional indemnity insurance covers things like:

- Giving poor advice that causes financial loss

- Errors in your work or calculations

- Breaches of confidentiality

- Copyright infringement

One of our clients accidentally sent the wrong Excel model to a client—a forecasting error that led to a £12,000 loss. The insurer covered the claim and legal costs. That single mistake could’ve bankrupted their small business.

Get cover. Seriously.

7. What level of cover should I get?

Most clients will ask for £1 million of cover as a minimum. Some big contracts might require £2 million or more.

The right level depends on:

- Size of your contracts

- Type of work you do

- Client expectations

If you’re working with government departments or enterprise-level clients, don’t skimp. You might even need retroactive cover (which protects work you did before the policy started). It’s worth asking for it when you apply.

8. Do I need public liability if I work at client sites?

Absolutely. Even if you're just plugging in a laptop at a client’s office.

Let’s say you trip over a wire, knock over a monitor, or spill coffee on someone’s keyboard. That’s a claim.

Most public liability policies cover things like:

- Accidental damage to third-party property

- Injury to third parties

- Legal defence costs

It’s affordable and essential if you're ever on-site.

9. What about tools, equipment, and company vehicles?

You can (and probably should) insure business assets under your limited company.

That includes:

- Laptops

- Mobile phones

- Specialist equipment

- Company cars or vans

Just be sure the policy lists the company as the owner—not you personally.

Also, if you drive for work (e.g. to client sites), check whether your motor insurance includes business use. And yes, you can claim mileage if your car is insured through the company — just keep records!

10. Does IR35 affect insurance?

Not directly. But it does change your risk profile.

If HMRC deems you inside IR35, you’re classed more like an employee. But your limited company is still liable for work done. So even under IR35, you may need cover — especially PI and public liability.

Some insurers even offer policies specifically tailored for contractors navigating IR35.

One thing to check: does your policy still cover you if you're found to be inside IR35 after the fact? Some do. Some don’t. Ask your insurer.

11. How long do I need to keep insurance after a contract ends?

This is called run-off cover.

You might finish a contract in June, but the client could sue you in December for work done months earlier. If your policy ended in July — you’re not covered.

Most contractors keep PI insurance for at least six years after a project ends. It’s especially important if you’re closing your company or retiring.

Run-off cover is usually cheaper than standard cover and well worth having.

Final thought

Insurance isn’t glamorous. It’s not something you think about every day. But when things go wrong — and in business, sometimes they do — it can be the one thing standing between you and financial disaster.

Treat it like your fire extinguisher: you hope you never need it, but when the flames hit the ceiling, you’ll be grateful it’s there.

Take a bit of time today. Review your cover. Ask your broker questions. And if you’ve not got insurance at all — now’s the time.

Future you will thank you.

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