As an independent contractor, you may be wondering what kind of insurance you need to protect yourself financially. After all, independent contractors come in all different shapes, sizes and specialties. The answer depends entirely on the type of work you do – for example, whether you do data entry from a cubicle, digital marketing services from your home office, or you work on other people's property providing home maintenance and construction services.
The good news is that an independent insurance agent can help tailor the perfect coverage for you by combining specific policies into one portfolio of comprehensive risk protection. But first, let’s talk about the kind of coverage you’ll be looking for.
Important Coverage Considerations for Independent Contractors
Errors and omissions: Contractors who provide consulting and advice, like accountants, financial planners, interior designers, and landscape architects need to be concerned about liability risks. If a client experiences a loss after your services or recommendations, they could file a lawsuit, and E & O insurance is there to protect you.
- Bodily injury and property damage: Contractors who work with heavy machinery and tools, like plumbers, remodelers, and electricians, need to be concerned with mishaps and injuries. This coverage will help protect you.
- Product and liquor liabilities: Independent contractors who serve food and alcohol at functions need to be concerned with potential injuries and illnesses that come from food and alcohol served. This liability coverage helps protect you from medical and legal consequences.
- Medical and disability: As a contractor, you’re most likely not on a group plan to cover your own injuries, which can leave you exposed to a loss of income risk if you become ill or injured. That’s where medical and disability insurance come in to help protect you.
Who Needs Contractors Insurance?
There are many different types of independent contractors out there who all need liability insurance and other coverage to match their specific risks, including:
- Independent construction contractors
- Plumbers, carpenters, electricians, and painters
- Repair people
- House and carpet cleaners
- Freelance writers, editors, and graphic designers
- Independent hair stylists and salon professionals
- Horse or dog trainers
What Is Independent Contractors Liability Insurance?
Getting the right independent contractors liability insurance in place can protect you from lawsuits, mishaps, and third-party property damage. Without it, your business could be devastated.
To fully cover yourself, you’ll need a few different types of coverage, including:
- General liability: The foundation of all contractor insurance coverage is a general liability policy. This coverage will provide two types of protection:
- Bodily injury: Provides coverage if you or someone who works for you causes injury or death to a third party during the course of work. It provides for medical care for the injured person and covers your legal defense if you are sued for damages.
- Property damage: Provides coverage if you or one of your employees causes damage to property belonging to others, not including the property you’re working on. This includes the building or property you are working on or any third-party property. For example: electrician was at your house to work on some light fixtures. If he damaged the light fixture – not covered. If he caused a short and it started a fire and burned down the house – everything is covered except the light fixture.
- Completed operations/product: Provides coverage in case a project you finished has an issue or causes damage. It can also extend to any products you sell or distribute.
- Advertising personal injury: Covers the risk of damaging another's reputation or causing a loss through slander, libel, or false advertising claims.
The specific independent contractors liability insurance coverage you need will be unique to your business. By working with a knowledgeable agent, you can feel confident that you don't have critical gaps in coverage that could leave you exposed to expensive legal claims.
Do You Need a Business Owners Policy?
The contractors general liability coverages can often be bundled with a few other coverages to create a business owners policy, or BOP. This serves two purposes. It expands the policy to cover risks that small business owners face, and also typically results in a discount on the cost of your insurance.
Normally, this coverage will make sense for you if you have employees. A small business is basically defined as a business that has up to 100 employees and generates about $5 million or less in annual revenues.
Other coverages that can typically be bundled with a BOP include:
- Property damage: This insurance covers your owned or rented property if it’s damaged. This includes office buildings, storage facilities, warehouses, workshops, or garages. It does not cover commercial vehicles.
- Commercial auto: Insures your cars, trucks, vans, specialized trucks, or any vehicles used for business purposes.
- Business income: This protects you from loss of income if your business is interrupted due to a covered loss. It usually covers income and operating expenses for up to 12 months.
Do You Need Workers Compensation?
As an independent contractor, you may or may not need to have workers compensation insurance. Workers comp regulations are mandated by each state. If you have employees, your state will most likely require you to carry it. This policy protects workers from job-related illness, injury or death. It will also reimburse workers for lost wages if they cannot go back to work due to their injuries.
Note: If you are in business for yourself, and don’t have employees, you are most likely not required to buy workers comp. However, some states do still require it.
Should You Consider Professional Liability Coverage?
When you’re looking for the right contractors insurance, you’ll have a number of options to think about, including whether to buy professional liability insurance, also known as errors and omission insurance or E & O.
E & O is a liability policy that protects you if you make a mistake that causes a client to lose money. Like general liability, it provides legal defense and claims settlements, if necessary.
You may want or need this coverage if:
- You provide professional advice in your line of work. This includes everything from recommending a particular type of plumbing or wiring to providing interior design services.
- You hire employees or subcontractors who provide any sort of advice or consulting services.
- Your state requires you to have E & O insurance due to the work you perform.
If you utilize subcontractors, it is a good idea to make certain they are insured with professional liability as well, as they might not be covered by your policy.
Compare Options and Find the Right Contractors Insurance
Putting together a business insurance plan to secure your business is an important step, especially if your business is growing, you’re adding new employees, or taking on larger jobs and bigger risks. There are a number of different coverage types, so it’s important to get the help of a trained professional to help customize coverage to your business risks.
Some of these trained professionals may be:
- Financial planners and accountants
- Insurance agents
Obviously, you'll need to work with an insurance agent to buy a policy, but financial planners and lawyers can help you understand your risks before you go looking for insurance. If you have colleagues who are also independent contractors in a similar field, they may also have tips and tricks to share with you. There’s also lots of online resource guides for you to refer to as well, like:
- The U.S. Small Business Administration
- The National Federation of Independent Business
- The IRS website
Each of these will explain the different coverage options you have and give helpful tips for setting up your business in a safe and efficient way.
The Benefits of an Independent Insurance Agent
Independent insurance agents are kind of like the Google of insurance quotes. You tell them what you’re looking for, and they bring in the results. And since they aren’t tied down to one carrier, they’re free to shop around and bring multiple policy options to the table.
And it gets better, you don’t have to review the policy options alone. They’ll walk you through everything you need to know about finding the right coverage, and price, for you. But it doesn’t end with your signature. Along the way, if something bad ever happens, they’ll handle the entire claim process for you and deal with the carrier, so you can focus on you. How sweet is that?