Why You Need Insurance as a Self-Employed Consultant

Posted by on Mar 25, 2015 in News | 0 comments

Why You Need Insurance as a Self-Employed Consultant

Do you work from home as a self-employed consultant? Do you believe that you really don’t need insurance at all or that your homeowners insurance will protect you from your business exposure?

The fact is, you still have business liability exposures associated with your line of work – even if you work from home.

I know a lot of self-employed consultants who feel they do not need insurance. In fact, most of them believe that their homeowners insurance will cover them. While it does cover property such as computers, it does not cover business liability!

Unless it’s required by a contract, in general, self-employed consultants don’t get business insurance.  And those coverage’s requested can vary depending on the contract. At a minimum a self-employed consultant should carry general liability, auto liability, workers compensation, and a professional liability policy.  An errors and omissions liability or professional liability is a consultant’s primary business exposure.

Depending on the nature of the business larger contracts will also require a consultant to carry an umbrella liability policy and set higher limits on the professional liability policy.

So what’s the reason behind requiring subcontractors to carry insurance? To transfer risk; they need to know that their subcontractors insurance will cover any losses caused by the subcontractor  – and – subcontractors are required to pick up the liability of the company requesting the insurance in larger contracts.

Most sole proprietor consultants can get a basic foundation of commercial insurance for about $1000 per year as a rule of thumb. Depending on the kind of consulting, adding professional liability or excess liability will increase this cost by another $1,000 to $2,500.

I recommend that the limits be negotiated up front in an effort to reduce the cost of risk to all our business customers. An honest discussion about kinds and amounts of insurance is healthy when requiring a consultant with $200,000 – $300,000 of revenue to carry $3 mm or $5 million worth of liability insurance and these excessively high limits may be difficult to obtain from any insurance carrier.

Having access to multiple insurance companies is always a plus. At Harned Insurance we have several companies hungry for this kind of business so we can offer good options at the lowest possible cost.

Do not hesitate to contact me if you have insurance questions or are in need of advice!

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