As an independent contractor, you’ve probably dealt with the headache of small business insurance, most likely to satisfy the terms of a contract. Although the word insurance is often accompanied by a sigh, there are benefits in your small business insurance policy outside of just checking a box in the contract terms. It is important to understand if your business is protected and how to decode what the terms in your policy actually mean.
As you might have experienced, most enterprises and clients will require some level of insurance in their contract. Because you work as an independent contractor on behalf of a company, your risk flows upstream to your client, which is why most contracts require you to carry business insurance. Your coverage protects the client from accidents caused by your work as an independent professional. Conceptually, these requirements are based on the work that will be performed and the risk involved. The requirements can vary from basic levels of coverage to unique coverages, such as crime and cyber insurance, depending on the engagement.
It’s not uncommon for clients to be named in a lawsuit over the actions of a contractor, so having proper policies and endorsements in place ensures they do not suffer the consequences of the errors of a contractor. Today’s business environment is very litigious and organizations of all size—including independents—should be cognizant of the operating risks.
To some, insurance terms are as confusing as another language. The most common coverages independent contractors are asked to obtain are general liability, professional liability, hired/non-owned auto, cyber liability, or crime insurance. To decode what these coverages mean, check out their definitions below.
Insurance policies often include exclusions or policy provisions that eliminate coverage for some type of risk. The purpose of exclusions is to narrow the scope of coverage provided by the insurer to carve away coverage for risks they are unwilling to insure. For example, personal auto policies often have an exclusion for work-related driving activities. This is why personal auto insurance does not often comply with a business-related requirement. Insurance, in general, is not one-size-fits-all and varies greatly based on your business profile, so it’s important to ask what is included and excluded in your coverages.
The independent contractor job market is competitive and while companies are increasingly looking to leverage independent talent, the risk of worker misclassification still stands as a barrier for many organizations. One way you can set yourself apart from other independents and land contracts with big companies is to proactively have basic insurance. For example, $500,000 of General Liability (runs about $400/yr) is the most basic coverage and is almost always required in contracts. Having this minimum shows clients you are serious about your business, minimizes their risk of misclassification, and streamlines the onboarding process into their program.
As a business owner, it’s important to ask questions and seek to understand the various insurance requirements, coverages, and exclusions. By having a foundational understanding of your policies, you can better protect your business in a litigation-heavy environment before it’s too late. Most importantly, talk with your insurance professional so you understand the coverages you have, potential risk obligations, and benefits associated with your policy. Remember, the only wrong question is the one you didn’t ask!
Bunker provides business insurance for independent contractors, freelancers, and small businesses. Visit Bunker’s website or ask your MBO business manager to learn more about Bunker’s unique insurance products designed exclusively for independent contractors.
This content from MBO Partners does not constitute legal or financial advice.
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