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Limited Company vs Sole Trader: Contractor Insurance Differences

contractor at work

When getting contractor insurance in the UK, it is important to know how things can change. This depends on whether you work as a limited company or as a sole trader. Both business types may face similar risks, but the type of cover and who is responsible for insurance claims could differ.

We explain how insurance for contractors can vary and what both business structures might need.

Why Business Structure Matters for Contractor Insurance

Whether you trade as a sole trader or set up a limited company affects:

  • Who is responsible if a claim arises
  • What level of financial protection is needed
  • How much cover is appropriate

Choosing the right insurance can help protect your business from a wide range of risks and offer peace of mind.

Contractor Insurance Both Business Types May Need

Many contractors arrange similar core covers, no matter their business set-up:

  • Public Liability Insurance: This covers the cost of injury or damage claims made by members of the public. Both sole traders and limited companies often need this.
  • Professional Indemnity Insurance Cover: Essential for contractors providing advice or services. It helps with legal actions linked to professional negligence, bad advice, or service mistakes.
  • Tools and Equipment Insurance: This insurance can cover lost, stolen, or damaged tools that are vital for completing work.

These policies aim to protect against common risks that many contractors face. This includes those in trades, IT, consultancy, and other fields.

Insurance for Sole Traders

If you work as a sole trader:

  • You carry personal liability for any business-related claims.
  • Insurance usually covers you as an individual, not a company name.
  • The amount of cover depends on the work you do, where you work, and client expectations.

Many sole traders consider personal accident insurance. This provides extra financial protection if they cannot work due to an injury.

Insurance for Limited Companies

For limited companies:

  • The business is responsible for insurance claims, not the individual.
  • If you employ staff, the law may require you to have employers’ liability insurance.
  • Directors and Officers Insurance (D&O) could help protect directors from personal claims linked to business decisions.

Limited companies often need a higher level of cover because of larger contracts or stricter client requirements.

Main Differences Between Limited Company and Sole Trader Insurance

  • Who is covered?

Sole traders arrange cover for themselves personally. Limited companies arrange cover for the business and may also need policies that protect directors.

  • Which risks does the coverage include?

Sole traders focus on protecting their own actions. Limited companies focus on protecting the company’s services and management team.

  • Why does it matter?

Having the right professional indemnity insurance or public liability insurance helps protect your business if a claim comes up.

How We Help Arrange Contractor Insurance

We help contractors arrange tailored insurance cover that suits both business structure and work type. Working with a broker can help you find the right type of coverage. They can also help you choose the right amount. This way, you won’t miss any important protection.

Getting the right contractor insurance is important. This applies whether you run a limited company or work as a sole trader. It can give you financial protection and peace of mind.