Do independent contractors need business insurance?

Business insurance is always a good idea for serious 1099ers, but even those just getting started might need it to get bigger jobs, sign leases, and even purchase certain types of equipment.

Insuring yourself is a huge part of your safety net. It’s better to invest some money into a solid insurance plan than to be put out of business over something unexpected. You need to protect what’s yours if you’re going out on your own.

As an independent contractor, you’re a free agent.

That means when you’re hired to do a particular job, you aren’t bound by the same rules as an employee (which is pretty awesome). But all great things (like freedom) come with downfalls (like not getting the same benefits that a full-time employee has).

As an independent contractor, you’ve got to put together your own safety net, which means figuring it all out on your own. Well, not all on your own– because we’re here to help.

Independent contractor insurance requirements

Most 1099ers get insurance to protect their business. Many factors figure into the types of policies you may be required to have, such as what you do and what you want to protect.

But some jobs might also require you to have a certain amount of insurance before you can bid on the job. The types of policies you need will depend on the type of work you perform, or services you provide, along with the requirements of the hiring party.

Workers’ compensation insurance for independent contractors is a good place to start because many are required to cover themselves in order to get hired for a job. It’s especially important for construction contractors.

Workers’ Compensation

Many companies that hire independent contractors will expect them to have their own workers’ compensation coverage, especially in more dangerous industries, like construction.

Employers don’t want the financial responsibility of a contractor working for them who is not a full-time employee. They want you to be responsible for yourself, especially if you get hurt or sick.

Read: Guide to Independent Contractor Workers’ Comp

There were 250,000 workers’ comp injuries in the professional and business services industry in 2011 alone.
That’s 685 claims per day.

General Liability Insurance

General liability insurance, or GL for short, protects you from many common things that can go wrong as a business owner, such as third-party lawsuits pertaining to bodily injury, medical costs, and damage to someone else’s property.

If someone gets hurt or property gets damaged because of you (or one of your employees or subcontractors), this policy helps cover the cost. Not only that, it’ll help pay for all of the wonderful things that come with a third-party lawsuit, like court fees, judgements and settlements, and paying for a lawyer.

General liability insurance covers the following things that may occur as a result of your operations, your employees, your premises, or completed operations.

  • Bodily injury “slips and falls” (lawsuits and medical costs)
  • Damage to someone else’s property
  • Personal and advertising injury

This coverage becomes more important the more equipment you have and the more you interact with the public.

$35.6 billion
Small businesses pay $35.6 billion out of pocket to settle claims each year.
That’s equal to 890,000 electric cars.

Professional Liability Insurance

Professional liability (aka E&O, or errors and omissions) is important to have if you offer professional services or expertise to clients for a living. It will help protect you should something happen that causes a client to file a lawsuit.

Even if you’re always on top of things, you can still be held liable if your client thinks something is your fault and you would have to defend yourself, which could add up quickly.

Professional liability covers the costs of getting sued by a client, including:

  • Paying your attorney
  • Judgements and settlements
  • Court costs

If you are working with smaller clients who most likely won’t take you to court due to time or money, this coverage might not be your top priority. But if you’re working in certain industries, like tech, design, or business consulting, you should consider this coverage no matter how big or small your clients are.

If you’re interested in specifics, contact one of our agents to find out what you need, based on your business.

The most expensive small business claim is reputational harm, averaging around $50,000. This includes things like libel, slander, and defamation.
That’s the same price as buying a tattoo sleeve for you and 16 of your closest friends.

Business Auto Insurance

If you own vehicles through your business, you’ll need this, if you don’t already have it. And even if you drive your personal vehicle on behalf of your business, you’ll want to have this.

We say this because your personal auto insurance probably doesn’t include enough coverage for business-related accidents.

Keep in mind that a business-related accident could mean something as simple as getting in a fender-bender on the way to a meeting with a client.

Learn more about business auto insurance.

Cyber Liability Insurance

If you handle sensitive customer information (even taking credit card payments) you might need to look into cyber liability insurance.

A lot of people think that because they’re independent contractors, hackers wouldn’t bother messing with them. But you could actually be a bigger target because potential hackers are probably betting that you don’t have the same sophisticated security as larger companies.

Business Owner’s Policy

Interested in a little extra cushion? Well then, you may be interested in a package, like a business owner’s policy (BOP), which combines general liability and property insurance. Business owner’s insurance is commonly known as a “catchall” policy.

A business property insurance policy would come in handy if:

  • You’re a landscaper and your equipment is stolen or damaged.
  • You do all of your work on a laptop and it gets damaged in a fire.
  • You own or rent a commercial office space or building.

Independent Contractor Insurance Cost

Are you wondering if business insurance will cost you an arm and a leg? You’re not alone, but it’s a common misconception. You can build a plan that fits your needs and provides coverage for only the risks you face, and nothing more. The lower your risk of liability claims, the less the policy will cost you. So you’ll only pay for what you need, fair and square.

How much you’ll end up paying for coverage depends on which policies you need. For example, many people could pay between $500 to $1,000 per year for a general liability insurance policy.

But there are a lot of factors that determine how much you’ll actually pay for a liability policy. The size of your policy limits (the maximum amount an insurance company will pay for a loss) is a big one. For example, if you have a coverage limit of $500,000, your policy will be cheaper than if you purchased a policy with $2 million worth of coverage. The higher your coverage limits are, the more expensive the policy will be.

Many other things will factor into your insurance cost– especially things like where you live and what you do in your profession. Learn more about the cost of insurance for independent contractors.

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