Contractors' Questions: Does my set-up affect business insurance?

Contractor’s Question: As a new sole trader who’s considering incorporating, I need to know whether it is the structure I choose to operate through that determines if I need business insurance, or is it the type of work I will be doing?

Expert’s Answer: It really depends on the work you do, rather than the structure, which determines what type of business insurance you might need, although there are some types of insurance that almost all self-employed people should consider.

Let’s start with public liability insurance, for example. This insurance will cover you if a member of the public is injured as a result of the activities of your business. For example, one scenario might be a client visiting you in your office, or at a trade exhibition where you have a stand for example, who trips over a computer cable and injures themselves. Even if clients never visit you, public liability will also provide protection if you inadvertently cause damage while visiting a client in their premises. Some clients may insist on this cover being in place.

Meanwhile, if your business involves giving professional advice, professional indemnity insurance which could protect you if you make a mistake (or are accused of making a mistake) with a client’s work and they decide to sue you, should also be a serious consideration. Depending on the policy, it may meet the legal and compensation costs of defending yourself and again, some clients may insist that you have professional indemnity cover.

If your work is also largely technology-based, you may find it useful to consider a specific 'e-risks' policy which protects your business against losses arising from your use of the internet and email. It includes damage caused by viruses, hackers and electronic identity fraud.

Insurance for items like your computer, laptop and smartphone/tablet should also be a consideration – quite often people think they are covered under their own household insurance but this is not always the case and is worth checking with your household insurer.

Finally, if you find yourself taking on employees, employers’ liability insurance is a legal requirement for most businesses no matter how they are structured.

One other point about working as a sole trader; you could say that business insurance is even more critical because you are unable to rely upon the limited liability protection a limited company can provide in the event that you are sued.

The expert was Hiscox, a provider of insurance to self-employed and contract professionals.