Business Insurance Requirements for Independent Consultants

The decision to start your own business as an independent professional means that you are responsible for ensuring the legal and financial wellbeing of your consultancy. Remember that you are your business—if any legal or financial problems arise that affect your company, they will also affect you directly. It’s important to protect your business against the risk of liability losses not just because many clients will require you to have these insurances, but it also to protect yourself and your future security.

Of course, the types of insurance that are right for your business will vary greatly and depend on your industry, the size of your business, and the type of clients you work with, among other factors. Here are a few common types of business insurance that many independent contractors carry:

3 Types of Business Insurance

1. General Liability Insurance

General liability insurance is often necessary for independents. This insurance covers a wide range of incidents, including accidental damage to a client’s property, claims of libel or slander, and the cost of defending lawsuits.

2. Errors and Omissions Insurance

Errors and omissions insurance, also known as professional liability insurance, provides protection in the instance that a client incurs financial harm due to an error or omission—that is, a failure on your behalf to perform an integral part of your responsibility on a project.

3. Home-based Business Insurance

While an insurance policy for a home-based business doesn’t apply to everyone, it’s relevant for independents who choose to work out of a home office. Most homeowners’ insurance policies do not cover losses sustained out of a home office, but an insurance policy for a home-based business can provide the protection you and your clients need.

Why consultants need insurance

Some independents forgo insurance in order to cut costs. However, the cost of resolving even a moderate issue, such as a contract dispute, without insurance can be far more expensive than the cost of premiums. These costs can sometimes be enough to put companies out of business entirely. Protecting yourself with business insurance is not just the smart thing to do, some states may actually require you to have certain types of business insurance to conduct work.

Many of your future clients will also require specific insurance coverage even for very small-scale projects. By engaging you as an independent contractor and putting their project in your hands, clients are placing a large amount of trust in you. No matter how careful you are, mistakes do happen and it is important to guard against them by mitigating risk as much as possible.

Levels of Coverage

The amount of insurance you will need will depend on many factors including the type of clients you work with and the industry you are in. However, expect most clients to require a minimum of $1,000,000 in general liability insurance and another $1,000,000 in errors and omissions coverage. These are good numbers to keep in mind as a starting point. Umbrella policies, which cover costs above and beyond general liability coverage are also recommended.

How much does business insurance cost?

Similar to coverage levels, the exact cost of business insurance will vary depending on the income of your business and the industry you work in. You may consider looking into business owners policy (BOP) insurance. This option combines a number of different policies into one package, often at a cost that is significantly less than purchasing the policies separately. As a general rule, it is a good idea to look into a number of quotes to ensure you get the best value possible.

Many independent contractors also choose to partner with a company such as MBO Partners that has extensive experience supporting independents in the operation and management of their business. As part of our service packages, MBO provides a number of business insurance options so you can forgo the need to purchase expensive individual insurances.