The Insurance Clause: What It Means and How to Negotiate It (2026)

What an insurance clause does An insurance clause requires one or both parties to hold specified insurance cover for the life of the contract, and sometimes for a period afterwards. Its job is to make sure that if something goes wrong, there is real money behind the promises in the contract. A limitation of liability or an indemnity is only as good as the other party's ability to pay. Insurance is how you turn a paper obligation into a funded one. The clause usually sets out the types of cover required, the minimum amount of cover for each, how long it must be kept in place, and how the other party can check it exists. Common types include public liability, product liability, professional indemnity, employer's liability, cyber insurance, and sometimes specific covers tied to the work, such as contractors' all risks in construction. The clause works closely with the liability and indemnity provisions. Those clauses decide who is responsible for what. The insurance clause makes sure the responsible party can actually pay when a claim lands. ## Why the clause matters Consider a supplier whose work causes damage, or a consultant whose advice turns out to be negligent. The contract may say they are liable, but if they have no assets and no insurance, that liability is worthless to you. The insurance clause closes that gap by requiring cover sized to the risks the contract creates. It also sends a signal. A party that carries appropriate professional and liability insurance is usually a more serious, better run business. For that reason, buyers often set insurance requirements not just to secure recovery but to screen out underqualified suppliers. ## Sample wording A common clause reads: ```

Insurance (a) During the term and for [6] years after it ends, the Supplier shall maintain with reputable insurers the following insurance: (i) public liability insurance of not less than [amount] per claim; (ii) professional indemnity insurance of not less than [amount] per claim or in the aggregate; and (iii) [other cover as required, e.g. cyber, product liability, employer's liability as required by law]. (b) The Supplier shall, on request, provide the Customer with evidence of the insurance, including a broker's certificate, and shall notify the Customer promptly if any required policy is cancelled or if its terms materially change. (c) The Supplier shall not do anything that invalidates any policy, and maintaining insurance shall not limit the Supplier's liability under this Agreement.

- No run off or tail cover, leaving you exposed to claims that surface after the contract ends, especially under claims made policies.
- No requirement to provide evidence or to notify cancellation, so the cover can disappear without you knowing.
- Treating insurance as a liability cap, or wording that lets a party argue its liability is limited to its insurance.
- Aggregate limits where you needed per claim protection, meaning a series of claims can exhaust the cover.
- Requiring cover a supplier realistically cannot obtain or afford, which either prices out good suppliers or leads to a term nobody actually complies with. ## How jurisdiction changes things Some insurance is mandatory by law and the clause should reflect that rather than reinvent it. Employer's liability insurance is compulsory for employers in the United Kingdom, and motor insurance is compulsory in most countries. Workers' compensation insurance is required in many US states and under various national schemes. Professional bodies in fields such as law, accountancy and medicine often require their members to carry professional indemnity cover at set minimum levels. Insurance regulation and available products differ by market, so a cover that is standard in one country may be structured differently in another. Treat this as general information, and confirm the mandatory and market position for the relevant jurisdiction, ideally with an insurance broker. The insurance clause is where the contract's promises meet the balance sheet. Get it wrong and the best drafted liability clause can still leave you unpaid. --- Checking that every supplier's insurance limits and run off periods match the risk, keeping a dated record of insurance certificates, and getting a reminder before cover lapses are easier when your contracts, their obligations and key dates sit in one place. [Adira](https://adiralaw.com) is built around that single workspace idea for business contracts, surfacing obligations and key dates, with Indian law deepest today. For understanding the clause itself, the explanation above is enough.