Contractor liability insurance is not one product. It is a label clients and comparison sites put over three separate covers that answer for three separate things, and a contractor who buys the wrong one has paid for a policy that will not respond to the claim the contract was worried about.
Three liabilities, three different claims
Public liability answers when your work injures somebody or damages property that is not yours. Employers' liability answers when a person who works for you is hurt, and is compulsory the moment you have an employee. Professional indemnity answers when the advice, design or specification you sold turns out to be wrong and costs the client money. A contract that says 'liability insurance' without saying which one is incomplete, and the honest response is to ask the client which of the three risks they have in mind rather than to guess and buy the cheapest.
What the contract clause is really doing
A main contractor or a commercial client writes an insurance clause for one reason: to make sure that if something goes wrong on their site or in their building, there is a solvent insurer behind you rather than a small limited company. That is why the clause usually names a limit, sometimes asks for the client's interest to be noted, and often requires evidence before you set foot on site. It is a condition of the work, not a suggestion, and a contractor who turns up with a lower limit than the clause names is normally sent away.
Where the limit comes from
Insurers do not price a limit on your turnover alone. The limit is driven by the worst realistic outcome of the work: a fire started by hot works, water reaching floors below, a structural failure, an injury to a member of the public on a busy street. A domestic jobbing contractor and a contractor working in an occupied commercial building can have similar turnover and very different exposures, which is why the same trade sees very different quotes. Where a client names a limit, buy to the clause; where nobody names one, buy to the worst thing your work can plausibly cause.
Self employed, limited company, and the cover that follows you
The legal wrapper changes who is sued, not whether you need cover. A sole trader is personally liable, so a claim reaches personal assets; a limited company puts the company in the firing line first, but a director can still be pulled in, and the client will still want the policy. Where a contractor works through an agency or an umbrella, the agency's policy may cover the placement and will not normally cover private work done on the side. Read who the insured is on the schedule and make sure it is the entity that signs the contracts.
Questions people ask about contractor liability insurance
Does a contractor need public liability and professional indemnity?
Both, where the work involves advice or design as well as physical work. Public liability answers for injury and damage, professional indemnity for a wrong specification or recommendation, and neither covers the other's claim.
Is contractor liability insurance a legal requirement?
Employers' liability is, once you have staff. Public liability and professional indemnity are not required by law for most trades, but are routinely required by the contract, the client or a trade body.
Who is the insured when I work through a limited company?
The company named on the schedule. If you also trade in your own name or under a second company, that work is normally outside the policy unless the schedule names it.