Are You Protected? Business Insurance Requirements for Independent Consultants

If you’ve been working independently for a while, you’ve likely encountered this moment: You’re finalizing a contract, and the client asks for proof of business insurance.

Sometimes it’s an easy conversation. Other times, it creates confusion: “Wait, why do I need that? None of my other clients have asked for it.”

It’s a common question, and a valid one. After all, independent professionals handle a lot on their own. You find your own work, manage your finances, juggle multiple projects, and deliver results without the support structure of a traditional employer. But when it comes to insurance, many independent contractors, consultants, and small business owners still take a pause.

Here’s what to know about business insurance—why clients request it, what it covers, and how it benefits your business in the long run.

Common Questions About Business Insurance

What Is Business Insurance? And Why Does It Matter?

Business insurance is a type of coverage that protects a company or self-employed individual from financial losses related to their operations. It can help cover the costs of unexpected events such as:

• Lawsuits or legal claims 
• Property damage 
• Bodily injury 
• Professional errors 
• Cyber incidents 

Business insurance protects you from risks tied to your work. That might include:

• A mistake or oversight in your deliverables
• A miscommunication over project scope
• A client claim of financial loss
• Accidental property damage or injury (even if remote, it can apply in some cases)

Having coverage in place can prevent a small issue from becoming a major setback, financially or legally. It also signals that you treat your work like a true business.

What Are the Different Types of Business Insurance?

The type of insurance you need depends on your industry, business size, and clients. Below are three common types of insurance many independent contractors use.

General Liability Insurance

General liability insurance is a must-have for most independent contractors. It covers incidents like accidental damage to a client’s property, libel or slander claims, and the costs of defending lawsuits.

Errors and Omissions Insurance

Errors and omissions insurance, also known as professional liability insurance, covers mistakes or oversights that cause financial harm to a client. It’s essential for protecting yourself if you fail to meet part of your project responsibilities.

Home-Based Business Insurance

If you work out of a home office, this insurance can cover losses your regular homeowners’ insurance won’t. It protects both you and your clients from risks tied to working from home.

Why Is Personal Insurance Not Enough?

Many contractors ask if they can use existing coverage, like homeowner’s insurance or personal auto. Unfortunately, the answer is usually no.

Personal policies aren’t designed for business activity. For example:

• Home or renters insurance doesn’t cover client work done at home
• Personal auto insurance won’t apply if you’re driving for a business-related reason
• Health insurance protects you, but not your clients or your work

Clients asking for insurance typically mean general liability, professional liability (errors and omissions), or both. In many cases, they’ll also want to be listed as an Additional Insured on your policy, which ensures they’re protected from claims tied to your work.

Why Do Independent Consultants Need Business Insurance?

Skipping insurance to save money may seem tempting, but the financial consequences of handling a lawsuit or contract dispute without coverage can be far higher. In some cases, it could force a business to shut down. Additionally, insurance is legally required in some U.S. states and other locations.

Many clients also insist on specific coverage, even for smaller projects. By hiring you, they’re placing significant trust in your work. Mistakes can happen, so having insurance is a critical way to minimize risks.

How Much Does Business Insurance Cost?

Coverage requirements depend on your clients and industry, but most expect at least $1 million in general liability coverage and another $1 million in errors and omissions insurance. Umbrella policies, which provide extra coverage beyond your main policies, are also a good idea.

A business owner’s policy (BOP) bundles several types of insurance together, often for less than buying each policy separately. Comparing quotes can help you find the best value.

Many independent contractors work with companies like MBO Partners, which specialize in supporting small businesses and entrepreneurs. MBO offers insurance options as part of our services, so you can skip the hassle of managing multiple individual policies.

Do All Clients Require Business Insurance?

Not all clients require business insurance. Some smaller clients don’t ask. Others might assume you already have coverage. But just because it wasn’t requested before doesn’t mean it wasn’t important.

More organizations—especially large companies, public institutions, or those in regulated industries—are tightening their risk management processes. Asking for insurance is becoming a standard step in engaging independent talent.

It’s not personal. It’s company policy.

Learn More: Common Small Business Insurance Requirements, Coverages, and Exclusions

Remember: You’re Running a Business—Protect It Like One

More clients are asking for business insurance—not to be difficult, but to set clear expectations and reduce risk. If you’re being asked to provide coverage, it’s likely a sign you’re working with serious clients and stepping into higher-level opportunities.

Business insurance doesn’t just protect your client. It also protects your business, your reputation, and your future. Being prepared sends a clear message that you’re ready to operate at the next level. And that’s a message worth sending.

More Tools and Resources for Independent Contractors, Consultants, and Small Business Owners

Being an independent contractor means you’re in charge of your business’s legal and financial health. Protecting your business with the right insurance is essential—not only because many clients require it, but also to safeguard your personal and financial future.

For more resources on becoming an independent contractor or small business owner, visit MBO’s blog for expert insights. Our content covers essential topics such as taxes and financial planning, AI technology, and marketing and branding, to help you build a strong foundation for your independent journey.