Understanding Pi Insurance
One of the most popular choices for insurance is Professional Indemnity Insurance
, otherwise known as PI Insurance, or PII. PI Insurance is a policy which covers a contractor in the event of a mistake or negligence on their part leading to financial losses for the end client. (Whilst this may sound like something a contractor won't need given their expertise in the area they're working in, accidents happen and it's not uncommon for most limited companies to prove they have a PI policy in place before taking up a contract with them.) Basically, a contractor's professional indemnity is covered by the policy for any mistakes that they make that result in a claim.
Aside from the cover it offers, PI is a great way to point out to HMRC that a contractor is a Limited company that takes financial risks, therefore a contractor and not an employee for your end client. This isn't the be all and end all of IR35, but it's an excellent starting point that serves to strengthen a contractor's position.
Successful contracting starts with status. For contractors, it should be made perfectly clear that as a self-employed professional, they're operating as part of their own business, and they are not actually an employee for the end client. This is related to all the advice that exists and circulates about being outside of IR35. One of the best ways to show that a contractor is in fact their own business is having an element of financial risk, and having an insurance policy is considered under this bracket.
The benefits of PI Insurance are vast, and the protection the policy provides is vital. When choosing the right PI Insurance however, contractors should take into consideration the following factors:
How long the policy lasts (The usual policy lasts for a year and is purchased annually)
Liability Cost (When purchasing the policy, make sure you chose the correct liability cost depending on the risks that your occupation entails, and potential for error that exists)
Getting the right policy (It may seem very simple, but many people still purchase either far too much or far too little Insurance than they should do)
Contracting is a line of work that experiences high risks, and often contractors can incur huge claims being made against them. As a professional working for a limited company, their mistakes are not covered by a corporate umbrella or large business, therefore insurance is needed in the cases where a contractor may make a mistake resulting in the financial loss of the client they may be working for. Basically, contractors need insurance to give them ample protection should the worst happen during a contract, and the finger then points at them. PI Insurance really is the essential insurance for contractors, being both a vital form of protection and a great tool in demonstrating status.
by: Chris Carvill
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