For example, if you are doing some coding work and somehow bring down your client’s system meaning they suffered a financial loss, they could sue you. Your Professional Indemnity policy would react and cover the defence costs and then any damages should you eventually be found liable.
It will also cover breach of contract and unintentional breach of confidentiality.
Of the three common business insurances, it is probably the most likely to actually be used by a contractor.
You can purchase various limits of indemnity, from £100k to £5m, but £1m is pretty standard in the white-collar contracting industry.
There are a number of specialist providers for contractors in the UK. Qdos Contractor sell a £1m policy for IT contractors for just £151.85 per annum, or £12.65 per month.