Ask most contractors when they last reviewed their contractor insurance and you’ll get a vague answer about setting it up when they landed their first contract. That’s understandable — when you’re focused on winning work and delivering it, insurance feels like a box to tick, not a decision to think through.

But the wrong cover — or gaps in your cover — can leave you personally exposed in ways that aren’t obvious until something goes wrong. And the cost of getting it right is usually far lower than people expect.

In this post we’ll walk through the types of cover that actually matter for most UK contractors, explain how your IR35 status plays into this, and share what clients and end-hirers typically require before you step through the door.

There are dozens of insurance products marketed at contractors, but in practice most people operating through a limited company need to think seriously about three.

Professional indemnity insurance

This covers you if a client suffers a financial loss and claims it was caused by your advice, work, or a mistake you made. For IT contractors, engineers, consultants, and anyone delivering knowledge-based services, this is the one that matters most. Claims don’t have to be legitimate to cost you money — defending them does. We’ve seen contractors face five-figure legal costs on disputes that ultimately went nowhere. Professional indemnity cover picks that up.

Public liability insurance

If you’re working on a client’s premises — or anywhere that members of the public could be affected by your work — public liability cover protects you if someone is injured or property is damaged because of something you did. Many clients require a minimum level of public liability cover before they’ll let you on site.

Employers’ liability insurance

If you have any employees — even a single member of staff — this is a legal requirement in the UK. If you’re a sole director contracting through your own limited company with no other employees, you’re typically exempt, but it’s worth confirming your position rather than assuming. The fine for operating without it when required can reach £2,500 per day.

Your IR35 status — whether you’re inside or outside the off-payroll working rules — is genuinely relevant to how you structure your insurance, and it’s an area where a lot of contractors don’t join the dots.

The off-payroll working rules exist to ensure that contractors who would effectively be employees if they were engaged directly pay broadly the same Income Tax and National Insurance as employees. If you’re found to be inside IR35, your income from that engagement is taxed at source by the deemed employer — which changes the nature of your risk profile.

Specifically: if you’re operating inside IR35, you’re not really running an independent business for that engagement. Some insurance providers take the view that professional indemnity cover on an IR35-inside contract carries lower risk (because you’re working like an employee), while others argue the reverse. What matters practically is that your insurance reflects the actual work you’re doing.

Outside IR35, your business independence is more clearly established. That means stronger grounds for professional indemnity claims relating to your independent judgement and methodology — and a clearer reason to have robust cover in place. If your contract is genuinely outside IR35, don’t let the insurance question slip. The two things are linked.

If you’re unsure about your status, HMRC’s Check Employment Status for Tax (CEST) tool is the starting point — though it doesn’t always give a definitive answer in complex situations.

In our experience working with IT and engineering contractors, the insurance requirements that come back from clients and umbrella companies aren’t always consistent — but there are common patterns worth knowing.

Most mid-to-large organisations will ask for professional indemnity cover of at least £1 million per claim as a minimum before an engagement starts. Public liability requirements vary more widely, but £1 million to £5 million is a common range. Some clients in construction, infrastructure, or financial services will ask for significantly higher limits.

Agencies often include insurance requirements in their contractor terms, sometimes without drawing much attention to them. It’s worth reading those terms rather than skimming past the boilerplate — we’ve seen contractors sign engagements without realising they’ve agreed to carry cover they don’t actually have.

A practical approach: before you start any new engagement, check two things. First, what does the client’s contract require? Second, does your current policy actually meet that requirement — not just in headline terms, but in the detail of what’s covered and what’s excluded? Many standard contractor insurance policies have exclusions for specific industries or activities. If you’re doing something specialist, check it’s explicitly covered rather than assuming it falls within the general scope.

Getting caught short on a requirement mid-contract is uncomfortable. Sorting it beforehand takes twenty minutes.

There’s a whole market of ancillary insurance products aimed at contractors, and not all of them represent good value for most people.

IR35 insurance

Some providers sell policies that claim to cover you against an HMRC IR35 investigation and any resulting tax liability. These policies vary enormously in what they actually cover, and some have conditions that make them very difficult to claim on. We’re not saying avoid them entirely — for contractors on large, long-running engagements where the IR35 position is genuinely uncertain, there may be a case — but we’d encourage reading the small print carefully before paying a premium for comfort that may not hold up.

Legal expenses insurance

This can be worth having as an add-on to your professional indemnity policy, since it covers the cost of pursuing unpaid invoices or defending certain contractual disputes. It’s rarely expensive as an add-on and can be useful for sole-director limited companies who don’t have in-house legal support.

Income protection and life cover

These aren’t contractor-specific products, but they matter for the self-employed more than for employees who have sick pay and death-in-service benefits. If you’re contracting full-time and have dependants, the absence of any employer safety net is a gap worth addressing — even if it falls slightly outside the typical contractor insurance conversation.