Are you feeling lost or overwhelmed as a new independent contractor?
You’ve taken the bold leap into the exciting world of becoming your own boss. But lurking beneath that excitement is a tiny voice of concern nagging at you: “How do I protect myself and my business?”
That’s where independent contractor insurance comes into play.
The right insurance can protect you, but knowing what to choose and what you need isn’t always easy. You might have questions, such as:
- What type of insurance should I get?
- How much will it cost?
- Can I even afford it?
After all, insurance can be murky territory filled with complex terms and perplexing options.
But we’re here to clarify contractor insurance for you. In this article, we’ll demystify this whole insurance business and guide you in making informed decisions that will both protect your business and give you peace of mind.
Do independent contractors need insurance?
In short: ideally, yes.
As an independent contractor, you need insurance, especially if you have your eyes set on bigger projects.
You may be tempted to save on insurance costs at the moment — that is until something unexpected happens.
Insurance coverage protects you from any damage resulting from your work or your operations. Having it means that, as an independent contractor, you are backed by the insurance company and their team of professionals, who’ll handle any claims or legal issues that may arise.
Moreover, depending on the location and the nature of the work, there may be legal requirements for contractors to have insurance.
If you work with a larger business, it’s unlikely that they’ll get insurance for you. This is because adding an additional insured to their policy can lead to increased premiums. Even if you are included in the hiring company’s insurance plan, there may be exclusions that limit coverage for independent contractors.
With independent contractor insurance, you know you’re protected at all times. You also have full control over the scope of your insurance coverage.
Be cautious of misclassification
Here’s where things can get tricky.
If an employer gives you an offer with insurance provided, you should carefully consider the terms and conditions and read the fine print. While this offer may seem like a convenient option, it could have serious implications related to misclassification.
In certain countries and for certain types of workers, accepting insurance provided by an employer might indicate that you aren’t truly in an independent contractor relationship — rather, you’re an employee. This misclassification can lead to significant consequences for both you and the employer.
If misclassified, the employer may become liable for penalties related to misclassification and could be required to provide statutory benefits and provisions that weren’t initially afforded to the contractor. For the contractor, becoming an employee means losing freedom and flexibility, such as control over work hours, project selection, and being able to work with multiple clients.
That’s why it’s essential to understand the legal differences between independent contractor and employee relationships in your specific jurisdiction.
Who should get independent contractor insurance?
Independent contractor insurance protects many occupations from potential risks and liabilities. The most common professions that need independent contractor insurance are as follows:
- IT consultants
- Construction workers
- Freelance writers
- Graphic designers
- Event planners
While this list provides a quick overview, it’s crucial to consider insurance regardless of your occupation. The type of insurance you’ll need depends on the nature of your work. The next section will dive into different insurance types in detail to help you pick the most suitable coverage for you.
Types of insurance for independent contractors
Choosing the right type of insurance coverage for your occupation is crucial. Here are several options to consider and how they can benefit you:
General liability insurance
General liability insurance is a fundamental type of coverage for independent contractors. It provides contractors with protection against third-party claims of bodily injury, property damage, and advertising or personal injury during their course of work.
For example, if a freelance photographer damages prototypes while at a client shoot, or a graphic designer’s client falls in their office, a general liability policy would cover the resulting costs, including medical expenses and legal fees. Without this coverage, independent contractors would bear the brunt of all financial liabilities.
Having general liability insurance also shows professionalism and credibility, as clients are reassured that you’re prepared for unforeseen circumstances and capable of handling potential accidents.
Professional liability insurance
Professional liability insurance, also known as errors and omissions insurance, is specialized coverage that protects independent contractors from claims related to mistakes or negligence in their work. It’s particularly important for those providing professional services, advice, or expertise.
Certain professions, like doctors, lawyers, consultants, and architects, face higher risks of errors that could lead to financial losses and reputational harm. Professional liability coverage helps contractors deal with expensive lawsuits, legal fees, and damages.
Take a marketing consultant, for example. If their advertising strategy fails to deliver the results that were promised to a client, they could face a lawsuit. This omissions insurance would cover legal costs and potential settlements, mitigating the financial hit on their business and reputation.
Mistakes can happen to the best of us. Having professional liability insurance is a smart move since it provides protection against potential mistakes, misjudgments, or oversights in professional work.
Commercial auto insurance
For independent contractors who travel for work or use vehicles for work purposes, commercial auto insurance is your go-to. When independent workers travel to meet with clients, have meetings, or complete tasks related to their jobs, they face increased risks while on the road.
For professionals such as traveling salespersons, delivery drivers, equipment transporters, and mobile service providers, commercial auto insurance ensures they have the necessary protection while on the road.
Picture a traveling salesperson who rents a car to visit clients from out of town every week. If a car accident were to happen during a business trip, this coverage would protect them from potential liabilities, property damage, and medical expenses.
Better safe than sorry.
Commercial property insurance
Commercial property insurance secures the physical assets and property that contractors use for work. It’s a great way for contractors with offices or workshops, expensive equipment, and inventory to safeguard their assets.
The loss or damage to business property could have significant financial setbacks or disrupt business operations. For example, if a construction contractor’s tools and equipment are stolen from a job site, that issue could severely impact the worker’s ability to complete projects on time — and, ultimately, result in financial losses.
This insurance would provide coverage to replace or repair stolen or damaged items so that the worker can recover from potential losses and maintain their business’s livelihood.
Workers’ compensation insurance
Workers’ compensation insurance helps contractors get support for medical expenses, wages, and rehabilitation after work accidents or illnesses.
This type of insurance is especially useful for independent contractors who work in physically demanding fields, such as construction, manual labor, or healthcare. The risk of injuries is higher in these industries, and workers’ compensation coverage offers support as necessary.
If a physical therapist were to injure their back while assisting a patient during an in-home visit, workers’ compensation insurance would cover their medical bills and provide them with income replacement during their recovery period.
This support becomes invaluable when accidents happen, as they allow the worker to focus on healing without worrying about financial burdens.
Business owner’s policy
A business owner’s policy (BOP) is an all-in-one insurance package that combines general liability insurance and commercial property insurance.
It’s a great choice for independent contractors, as it provides protection against a wide range of risks — namely third-party claims for bodily injury and property damage and loss or damage to business property.
By bundling general liability and commercial property coverage together, independent contractors can save on costs while having complete protection for their business.
Do you need liability insurance when working with international clients?
Absolutely. When working with clients in different countries, it’s important to stay protected. Dealing with international clients can have a unique set of challenges, and if any issues arise, liability insurance can help cover the legal costs and any damages that might result.
Working with international clients introduces complexities related to different legal systems, cultural norms, and business practices. When disputes happen, navigating unfamiliar legal territory can be even more challenging and costly. That’s why global contractors should always consider getting liability insurance to prepare and protect themselves.
What insurance should global contractors have?
As global contractors venture into international markets, getting insurance should be at the top of their priority list. While specific insurance needs vary depending on the country the contractor works in, there are some key insurance types that contractors should consider.
Standard insurance types for global contractors:
- Foreign general liability insurance
- International commercial property insurance
- Business travel insurance
- International professional liability insurance
Other insurance types to consider:
- Political risk insurance
- Export credit insurance
- Kidnap and ransom insurance
- Foreign voluntary workers’ compensation insurance
How much does independent contractor insurance cost?
Insurance costs vary based on several factors, including the type of coverage, the nature of the contractor’s work, the level of risk, and the coverage limits desired. Other factors, like the contractor’s location, the business size, the claims history, and the deductible, can all affect the cost, too.
The average cost of general liability insurance is around $360 per year. If you include commercial property insurance or a BOP, the annual cost is roughly $500. These figures are generally lower for — and more applicable to — office roles. For on-site jobs, the cost can reach up to $1,200 annually.
How to save big on insurance costs
When it comes to independent contractor insurance, striking the right balance between affordability and adequate coverage is the sweet spot. Here are Remote’s tips for saving on insurance costs without compromising protection:
Compare coverage options
Don’t just sign with the first insurance provider. Shop around and compare quotes. After you explore the market, you’ll know the best rates and coverage for your needs.
Bundling different insurance policies, like commercial property and general liability policies, is cost-efficient. Also, consider getting annual insurance instead of making monthly payments, as it’s usually cheaper to pay yearly.
Adjust coverage limits
What type of protection do you really need? Carefully assess your requirements and adjust your coverage limits to align with the specific risks in your profession.
Ask about discounts. There are a variety available for safety measures, claims-free history, industry affiliations, and more.
If you need more guidance, think about consulting with an experienced insurance broker to help you identify cost-effective options for your situation.
Coverage limits and deductibles
Coverage limits and deductibles are necessary aspects of insurance that every independent contractor should be aware of. They determine the amount of money you’ll receive from the insurance company and how much you’ll need to pay out-of-pocket in the event of a claim.
Let’s discuss each of them in detail.
Coverage limits are the maximum amount an insurance policy will pay out for a claim. When deciding on a coverage limit, you should evaluate the risk of the job, the potential costs of a claim, and your financial situation.
For example, a general liability insurance policy may have a coverage limit of $1 million per claim and a $2 million aggregate limit, meaning it’ll cover up to $1 million for each claim and up to $2 million in total claims within the policy period.
Understanding and setting appropriate coverage limits ensures you have the right level of protection for your situation.
On the other hand, a deductible is the amount that the independent contractor must pay before the insurance coverage kicks in. Choosing the right deductible amount involves balancing premium costs and potential out-of-pocket expenses.
A higher deductible typically leads to lower premiums but requires the policyholder to pay more in the event of a claim.
Let’s say, for instance, that you get an auto insurance policy with a $500 deductible. This means you must pay the first $500 of any covered claim, and the insurance will cover the rest.
Properly assessing and managing these aspects of independent contractor insurance will help you protect yourself while staying on budget.
Protect yourself and your business today
Being an independent contractor means you get to work on your own terms. But it also means you’re responsible for protecting yourself and your business.
Buying the right independent contractor insurance for your needs gives you peace of mind so that you can focus on doing what you love.
While insurance is a great way to protect yourself, why stop there?
As a new contractor, you likely have many questions about other aspects of working independently, especially if you plan to work with international clients.