Orlando Harmon
Independent contractors do need insurance, and the type of insurance they need will depend on the kind of work they do. Without insurance, independent contractors could be left bankrupt by lawsuits, accidents, and mistakes. General liability insurance is the most common form of business insurance for independent contractors and can protect against lawsuits resulting from property damage, bodily injury, and reputational harm. Other types of insurance that independent contractors may need include commercial auto insurance, commercial property insurance, errors and omissions insurance, business interruption insurance, and workers' compensation insurance.
| Characteristics | Values |
|---|---|
| Do independent contractors need insurance? | Yes |
| Types of insurance | General liability insurance, errors and omissions insurance, workers' compensation, business owners policy, commercial auto insurance, disability insurance, performance bonds, cyber liability insurance |
| General liability insurance coverage | Property damage, bodily injury, advertising injury, reputational harm, libel, slander, copyright infringement |
| Errors and omissions insurance coverage | Professional negligence, mistakes, oversights, failure to deliver a service on time |
| Commercial auto insurance coverage | Accidents while driving in the course of doing business |
| Business interruption insurance coverage | Income lost due to business being unable to operate after an accident or disaster |
| Cyber liability insurance coverage | Costs resulting from data breaches or software hacks, including notifying customers and setting up credit monitoring |
| Reasons for having insurance | Protection from lawsuits, peace of mind, financial security, ability to meet requirements, easier for clients to hire with confidence |
| Reasons for not having insurance | Expensive, not a priority |
What You'll Learn
General liability insurance
As an independent contractor, you may be liable for accidents or injuries to clients or third parties. You could be held responsible for property damage, bodily injury, or advertising injury. For instance, if a client trips over an extension cord in your cluttered workspace and gets hurt, they could sue you for damages. Without insurance, you would have to pay out of pocket for legal fees and damages.
- Property damage: Damage to client property, such as accidentally dropping a client's laptop.
- Bodily injury: Injury to a client or third party, such as a client tripping and hurting themselves.
- Advertising injury: Libel, slander, reputational harm, or copyright infringement in your advertising.
The cost of general liability insurance for independent contractors depends on factors such as policy limits and deductibles. On average, it costs around $42 per month.
You can obtain general liability insurance in a few ways:
- Get your own policy from an insurance provider.
- Be added to your client's policy as an additional insured.
- Be covered under a blanket additional insured endorsement on your client's policy.
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Errors and omissions insurance
Errors and omissions (E&O) insurance is a type of liability insurance that covers claims against your business for mistakes, negligence, malpractice, errors, or failure to provide the promised service. It is ideal for independent contractors who serve in an advisory or consultant capacity, such as accountants, interior designers, and financial planners.
E&O insurance can help cover the costs of attorney fees, court costs, administrative expenses, and settlements or judgments resulting from a claim. For example, if a client sues an independent contractor for providing advice or services that result in financial harm, E&O insurance can cover the legal fees and damages.
The cost of E&O insurance varies depending on the size and nature of the business, but the average premium for a small business is around $735 per year. Independent contractors can purchase E&O insurance from commercial insurance brokerages or through companies like Next Insurance, Thimble, and USAA.
It's important to note that E&O insurance does not cover all types of claims. It typically excludes claims related to bodily injury, property damage, employment-related issues, fraud, intellectual property violations, and data breaches.
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Commercial auto insurance
The cost of commercial auto insurance depends on various factors, including vehicle type and value, location, employee driving records, policy deductible, and limits. On average, commercial auto insurance costs $147 per month, with 37% of small business customers paying less than $100 per month for their policies.
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Business interruption insurance
Independent contractors do need insurance, and the type of insurance they require will depend on the nature of their work. Business interruption insurance is one type of insurance that can be particularly useful for independent contractors.
The cost of business interruption insurance varies depending on the size and type of business, its location, and the amount of coverage required. It is typically purchased as an add-on to commercial property insurance or a business owner's policy (BOP) and cannot be bought as a separate policy.
Independent contractors should consider the benefits of business interruption insurance as part of their overall insurance package, which may also include general liability insurance, errors and omissions insurance, workers' compensation insurance, and commercial auto insurance.
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Workers' compensation insurance
Independent contractors are typically not required to carry workers' compensation insurance, except in cases where they have employees working under them. However, workers' compensation insurance can be highly beneficial for independent contractors, as it can protect them from financial losses in the event of a workplace injury. It covers medical expenses and lost wages, ensuring that injured employees are taken care of and can even provide compensation if an employee becomes permanently disabled or dies as a result of their injuries.
The cost of workers' compensation insurance varies depending on factors such as the number of people covered, the type of work, the business location, and the company's claims history. For example, contractors in physical trades tend to pay a higher rate due to the risks involved in their work.
Additionally, some businesses may require independent contractors to have their own workers' compensation insurance as part of their contract. This helps to limit the company's liability and protect them financially if a contractor is injured while working for them.
While it is not a legal requirement for independent contractors in most states, workers' compensation insurance can provide valuable protection and peace of mind for both the contractor and their clients.
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Frequently asked questions
Yes, independent contractors need insurance to protect themselves and their business. Without insurance, independent contractors would have to pay out of pocket to defend themselves in court and cover any damages.
Without insurance, independent contractors face huge financial losses in the event of a lawsuit. They can still be sued and will be responsible for any damages and legal fees if they lose. Not having insurance can also make it harder to find clients, as many require contractors to have insurance before agreeing to work with them.
This depends on the type of work carried out by the contractor. Most independent contractors should consider buying general liability insurance, which covers common business risks such as customer injury, customer property damage, and advertising injury. Other types of insurance that may be needed include commercial auto insurance, commercial property insurance, errors and omissions insurance, business interruption insurance, and workers' compensation insurance.
The cost of insurance for independent contractors depends on various factors, including the type of work, the size of the business, the location, and the track record. According to Insureon, general liability insurance costs an average of $42 per month for their customers.
Independent contractors can obtain insurance by purchasing a policy from a business insurance provider or agency. They can also be added to their client's general liability policy as an additional insured, although this is usually more expensive for the client.
