Top 10 Insurance Mistakes Contractors Make

Running a contracting business means juggling multiple responsibilities—from project management and client relations to invoicing and compliance. With so much on your plate, it's easy to overlook critical insurance decisions that could leave your business exposed to significant financial and legal risks. Whether you're a sole trader, a small team, or managing a larger operation, understanding the most common insurance mistakes contractors make is essential to protecting your livelihood.

In this comprehensive guide, we'll explore the top 10 insurance mistakes contractors frequently make, why they matter, and how to avoid them. By the end, you'll have a clear roadmap to ensure your business is properly protected.

1. Operating Without Public Liability Insurance

The most critical mistake contractors make is operating without public liability insurance—or worse, assuming it's optional.

Public liability insurance protects your business when a third party (client, member of the public, or property owner) suffers injury or property damage as a result of your work. Without it, you're personally liable for all costs, including medical bills, legal fees, and compensation claims.

Why this matters: A single accident—a client slipping on your work site, damage to a neighbouring property, or injury to a bystander—could result in claims exceeding £100,000. Without insurance, you'd be paying from your own pocket, potentially bankrupting your business.

The solution: Public liability insurance is non-negotiable for contractors. Most clients and local authorities require proof of cover before hiring you. Typical cover ranges from £1 million to £10 million, depending on your trade and project size.

2. Underestimating the Cost of Professional Indemnity Claims

Many contractors overlook professional indemnity insurance, believing their public liability policy covers everything.

Professional indemnity insurance protects you when a client claims financial loss due to your professional advice, design error, or poor workmanship. This is different from physical injury or property damage—it covers the cost of rectifying your mistakes.

Why this matters: If you provide design advice, structural recommendations, or specialist guidance as part of your service, you're exposed to indemnity claims. A design flaw that costs a client £50,000 to fix could result in a claim that your public liability policy won't cover.

The solution: Assess whether your work involves providing professional advice or design services. If so, professional indemnity insurance is essential. Many contractors in trades like carpentry, plumbing, electrical work, and construction management should carry this cover.

3. Failing to Declare All Your Work Activities

Insurance policies are based on the information you provide. Many contractors make the mistake of not fully disclosing all the work they do.

For example, you might be primarily a carpenter but also do occasional electrical work, scaffolding, or asbestos removal. If you don't declare these activities, your policy may not cover claims arising from them.

Why this matters: If a claim occurs during undeclared work, your insurer could refuse to pay and potentially cancel your policy. You'd be left uninsured and personally liable.

The solution: When applying for insurance, provide a complete and accurate list of all work activities, even if they're occasional. If your work scope changes, update your insurer immediately. Honesty now prevents costly disputes later.

4. Choosing Inadequate Cover Limits

Some contractors opt for the minimum cover limits to save money—a false economy that can backfire spectacularly.

A £1 million public liability limit might seem sufficient until you're facing a £2 million claim. Many large clients, local authorities, and major projects require £5 million or £10 million cover as a condition of hire.

Why this matters: If a claim exceeds your cover limit, you're personally responsible for the shortfall. Additionally, inadequate cover can damage your professional reputation and cost you lucrative contracts.

The solution: Assess your typical project values and client requirements. For most contractors, £5 million to £10 million public liability cover is standard. Discuss your specific needs with an insurance broker who understands your trade.

5. Not Protecting Your Tools and Equipment

Many contractors assume their business insurance covers tools and equipment left on site or in vehicles. It often doesn't.

Standard public liability and professional indemnity policies don't cover your own tools, equipment, or materials. If your van is broken into or tools are stolen from a job site, you're not covered unless you have specific tools and equipment insurance.

Why this matters: Tools and equipment can represent a significant investment. A theft or loss without insurance means you're out of pocket and potentially unable to complete projects, impacting your income and reputation.

The solution: Add tools and equipment cover to your insurance package. This typically covers theft, accidental damage, and loss. Keep an updated inventory of your equipment and its value to ensure adequate cover.

6. Ignoring Employer's Liability Requirements

If you employ staff—even one part-time worker—you're legally required to have employer's liability insurance in the UK.

Many sole traders and small contractors overlook this requirement, believing it only applies to larger businesses. The reality is that any business with employees must carry this cover.

Why this matters: Operating without employer's liability insurance is illegal and can result in fines up to £20 million. Beyond legal penalties, if an employee is injured and you're uninsured, you're personally liable for all costs, including medical treatment and compensation.

The solution: If you employ anyone, obtain employer's liability insurance immediately. The cost is typically modest (often £100-£300 annually for small teams), making it an easy win for compliance and protection.

7. Failing to Update Insurance After Business Changes

Contractors often set up insurance once and forget about it. But business changes—taking on employees, expanding into new trades, moving to larger premises, or increasing project values—all require insurance updates.

Operating with outdated insurance can leave gaps in your cover or result in claims being denied because your policy doesn't reflect your current operations.

Why this matters: If your circumstances have changed but your insurance hasn't, you might discover you're uninsured exactly when you need protection most. This is particularly risky if you've expanded into higher-risk activities.

The solution: Review your insurance annually and whenever your business changes. Inform your insurer of any new employees, new work activities, higher project values, or changes to your premises. Regular communication prevents nasty surprises.

8. Not Understanding Policy Exclusions and Limitations

Many contractors don't read their insurance policies carefully, leading to disappointment when a claim is rejected due to an exclusion they didn't know existed.

Common exclusions include work at height, asbestos handling, work on listed buildings, and certain high-risk activities. If your work involves these areas and they're excluded from your policy, you're not covered.

Why this matters: Exclusions can render your insurance useless for certain types of work. Discovering this after an incident means facing an uninsured claim and potential financial ruin.

The solution: Read your policy documents thoroughly. Understand what's covered, what's excluded, and what conditions apply. Ask your broker to explain any unclear terms. If your work involves excluded activities, seek additional or specialist cover.

9. Mixing Personal and Business Insurance

Some contractors try to save money by using personal car insurance for business use or combining personal and business property on a single policy.

This is a common mistake that often results in claims being denied. Insurance policies are specific—personal policies don't cover business use, and vice versa.

Why this matters: If you have an accident while using your personal car for business purposes and you're only insured for personal use, your claim will be rejected. Similarly, mixing personal and business property on one policy can result in inadequate cover and claim disputes.

The solution: Keep personal and business insurance separate. Ensure your business car insurance explicitly covers business use. If you work from home, inform your home insurer and consider adding business property cover if needed. Clarity prevents disputes.

10. Choosing Insurance Based on Price Alone

The final common mistake is selecting insurance purely on cost, without considering cover quality, excess levels, or insurer reputation.

The cheapest quote isn't always the best value. A policy with a high excess, limited cover, or an insurer known for difficult claims handling can cost you far more in the long run.

Why this matters: When you need to make a claim, you want an insurer who responds quickly and fairly. A cheap policy from an unreliable insurer might leave you without support when it matters most. Additionally, high excess levels mean you're bearing more of the claim cost yourself.

The solution: Compare policies based on cover quality, excess levels, and insurer reputation—not just price. Read reviews, ask other contractors for recommendations, and work with a broker who understands your trade. Paying slightly more for reliable cover is a worthwhile investment.

How to Avoid These Mistakes: A Contractor's Action Plan

Now that you understand the common pitfalls, here's how to protect your business:

1. Work with a specialist broker. Insurance brokers who understand the contracting industry can recommend appropriate cover and help you avoid gaps.

2. Conduct a risk assessment. Identify all the risks your business faces—injury, property damage, professional liability, equipment loss—and ensure you have cover for each.

3. Document everything. Keep records of your insurance policies, cover limits, exclusions, and any updates or changes.

4. Review annually. Set a reminder to review your insurance every year and whenever your business changes.

5. Communicate with your insurer. If your circumstances change, inform your insurer immediately. Transparency prevents claim rejections.

6. Invest in prevention. Good health and safety practices, quality workmanship, and clear client communication reduce the likelihood of claims and can lower your premiums.

7. Understand your obligations. Familiarize yourself with legal requirements for your trade, including insurance requirements, health and safety regulations, and compliance standards.

Conclusion

Insurance might not be the most exciting part of running a contracting business, but it's absolutely essential. The mistakes outlined in this guide—from operating without public liability cover to choosing insurance based on price alone—can have serious consequences for your business, your finances, and your reputation.

By taking the time to understand your insurance needs, choosing appropriate cover, and reviewing your policies regularly, you can protect your business against the unexpected and focus on what you do best: delivering quality work for your clients.

Don't let insurance mistakes derail your contracting business. Take action today to ensure you're properly protected. If you're unsure about your current cover or need guidance on what you should have in place, speak with a specialist insurance broker who understands the contracting industry. Your future self will thank you.