What insurance do IT contractors need?

If you’re considering going solo as an IT contractor, you’re probably wondering: what’s the best way to protect myself and ensure a bright future?  

It can all be a bit confusing when you’re first starting out. But trust us – it’s worth putting in the time before you take on clients to get the right protection.

Having IT contractor insurance is a bit like having a firewall for your business. It’s there to shield your finances, your reputation, and your precious time. A great place to start then…

Do IT contractors need insurance?

There are plenty of reasons why an IT contractor should have insurance…

It might not be a legal requirement, but many clients (especially corporate companies and ones from the public sector) will insist on you having it before they’ll agree to work with you.

And even if your clients don't require it, it’s there to protect you if something goes wrong. Not to mention, it shows you’re professional and gives your clients peace of mind…

An IT contractor can encounter all sorts of glitches that aren’t as easily fixed as just turning it off and on again.

What if a client claims the software you’ve built or recommended isn’t fit for purpose and has wasted their money? Or you took twice as long as you said to deliver and breached your contract?

You’re probably not sure…and that’s OK. You’re no legal expert and you’re not expected to be. That’s why you need insurance though – to defend you and cover the costs if a claim like this comes your way.

There are other potential pitfalls to consider too…

What insurance do IT contractors need?

Professional indemnity (PI) insurance is the most important one for IT contractors. It’ll cover you for claims like the ones we’ve already talked about – if the work you’ve done doesn’t meet a client’s expectations, or you breach your contract, for example. These are the most common type of claims, and quite often the most expensive too...  

PI insurance will pay to defend you in these kinds of situations, and cover any compensation owed to the client.

If you visit clients in person, if they come to your office, or if you work on clients’ tech, it’s a wise move to have public liability insurance. This covers any legal fees or compensation if you cause an injury or property damage. Say you spill coffee over a client’s expensive laptop, for example.

Another essential type of insurance for those working in the digital world is cyber insurance. Being in the tech industry, you probably don’t need us to delve into the nitty-gritty of how cyber-attacks work…

But what you might not know, or have really thought about, is how to keep your business afloat if someone steals your client’s data.  Retrieving data, getting your systems secure again, and maybe even having to do some PR if you get bad press…

Having comprehensive cyber insurance in place will help you get back on track should something like this happen. Add on financial cybercrime and cover for your lost earnings and you'll know that if you’re hacked, your business will recover.

You’ll have IT, legal, and PR experts on hand to sort it all out. That leaves you to do your job and keep winning new contracts.

Your IT contractor insurance requirements don't stop there. Some other types of insurance you might want to think about include contents and portable equipment insurance, business interruption, and employers’ liability insurance if you employ anyone (it’s the law).

How much professional indemnity insurance do I need as an IT contractor?

Clients will often tell you how much professional indemnity insurance cover they expect you to have. Especially if you’re working on a big project, or if you’re going through an agency or consultancy.

But if they don’t, as a rule of thumb, think about the worst mistake you could make. How much would it cost to put right? How much compensation would you have to pay your client? And then there’s the legal costs too...  

Your head’s probably spinning with numbers by now. But it’s always better to think of the worst-case scenario and overestimate, than risk being underinsured.

If you’re feeling unsure, it’s a good idea to talk about it with a broker. They can help you figure out what your IT contractor insurance requirements are likely to be.

When should I get insurance?

If you’re just starting out as an IT contractor, you might be thinking about getting a few clients under your belt before forking out for insurance.

But here’s the thing…

Some types of insurance, including professional indemnity, have to be in place at the time the work was done and when the claim is made.

So let’s say one of your very first clients makes a claim against you a year after you worked for them. Even if you have insurance when the claim comes in, it won’t cover you if you didn’t have it when you took on the client.

Ultimately, it pays to have insurance from the get-go. Because chances are, if you’re going to make mistakes, aren’t they more likely to be at the beginning of your career when you’re still learning?

And, when you’re just starting out, you’re not likely to be making huge amounts of money or have built up a reputation yet. If you get a claim early on, and you don’t have insurance, it could put your dreams of having your own business permanently on hold.

Do I need to keep my insurance after I’ve finished a contract?

Yes – your professional indemnity insurance anyway...

Like we said, this type of insurance needs to be in place when the work was done and when the claim is made.

And you probably know as well as we do, things can take a long time to surface. Years, even. As long as there’s still a chance something you’ve done could cause a problem and result in a claim, you need the insurance in place.

If you close your business or retire later on, you can get something called run-off cover. It only covers work you did in the past.

So don’t cancel your policy too soon. Speak to your broker if your circumstances change and adapt it instead.

Choosing the right insurance as an IT contractor

Whatever industry you work in, business insurance should be tailored to your specific needs. It’s never one-size-fits-all. So it’s important to take your time and make sure you’re buying what’s right for you.

That’s where a broker can really come in handy. They’ll do the legwork for you and figure out exactly what you need. Find a broker who specialises in IT contractor insurance, so they understand your business on a deeper level.

And it’s not all about choosing the right insurance. It’s about doing what you can to protect yourself from claims arising in the first place…

Always read your client’s contracts carefully. Make sure you understand exactly what’s expected of you, so you’re not faced with any nasty surprises.

Final tips and next steps

Your IT contractor insurance requirements will probably change over time as your business grows. So make sure you’re reviewing it regularly, and that you’re always protecting yourself from risks.

Stick a reminder in the diary when your renewal is approaching. If you forget to renew, gaps in cover could leave you exposed. And renewal is always a good time to review where the business is at and whether your insurance is still covering all bases.

If you’re still feeling unsure about what your IT contractor insurance requirements are, take a look at our IT contractor insurance page, or you can give us a call on 0345 222 5391.

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