Are You a Freelance Consultant? You May Be Unknowingly at Risk
Thanks to technology, the economic landscape radically differs from just a generation ago. Many workers have come to the conclusion that they can no longer rely on employers for job security, decent wages, or benefits. In the gig economy, many strike out on our own, often as freelance consultants in a given field. While entrepreneurism offers a certain joyous freedom, being a company of one also poses a tremendous risk. That’s why consulting insurance can be so valuable. What is it and when is it right for you?
What Is Consulting Insurance?
“Consulting Insurance” isn’t actually a coverage type. It’s umbrella term for several different forms of coverage, each of which may be useful to freelancers in various fields. These are the types of coverage consultants and freelancers should consider:
Professional Liability Insurance
As a consultant, you trade on your expertise. By definition, that makes you a professional in your chosen field, dispensing advice critical to the success of your clients’ business. If that advice proves faulty, or what you deliver doesn’t meet the client’s expectations, whether through error, omission, or other means, your client may suffer a significant loss. Consequently, they may choose to sue you for negligence to recover that loss.
Professional liability insurance, also known as ‘Errors and Omission’ or E&O insurance, protects you from the financial fallout of a lawsuit related to your work performance, including paying for legal defense fees.
General Liability Insurance
Consultants must also protect themselves from personal injury and/or property damage claims when they visit or are visited by clients. General liability policies cover you in three ways when such a claim is made:
They pay for repairs and replacements to any damaged property of others; medical expenses of anyone injured while visiting your premises or working with you at theirs; and lawyer’s fees and compensation if you are determined to be at fault.
Business Personal Property Insurance
BPP is an addendum to general liability policies, covering all your business-related furnishings and equipment, whether you work from home or an office. Most importantly, that includes cell phones, tablets, and/or laptops carried with you while visiting clients.
Your communications devices are especially critical to your ability to do business, but equally vulnerable to damage and theft while you are in transit. Time is money. A business personal property clause makes replacing those important devices quick and easy.
For any consultant who hires even one employee, worker’s comp is essential. In fact, it’s legally mandated in most states. Even in those states where it isn’t required, every employer should seek coverage.
A lost-time accident suffered on the job won’t just affect your company’s productivity: the medical expenses and compensation due to an employee can bankrupt the uninsured boss.
Directors’ and Officers’ Insurance
For the consultant who heads a public, private, or non-profit organization subject to the approval of a board, directors’ and officers’ insurance is necessary coverage to protect you from litigation brought by board members unhappy with your performance. Such a policy is especially vital to a smaller firm with fewer resources to combat this type of political powerplay.
Cyber Liability Insurance
Insurance to cover damages from data breaches is increasingly imperative to any consultant who keeps sensitive, confidential data on their clients. Statistics reveal that 85% of data breaches occur at small businesses, with a company website making your operation a more likely target.
Due to the high cost of recovering from such an incursion, 60% of the victimized businesses go under within six months of the hack. Cyber liability insurance has become a must have in the last few years. Along with insurance, small businesses should create a cyber security plan to reduce risk and stay vigilant. At NOW Insurance, this coverage can be built into your insurance policy or we can provide it as a standalone policy for professionals and entities that have insurance elsewhere.
Which Freelancers Should Consider Consulting Insurance?
The easier question to answer is which freelance consultants shouldn’t obtain insurance. Unfortunately, we live in a litigious society. Whether you are a business, management, or security consultant, a photographer, videographer, graphic designer, interior decorator, or any freelance specialist to which a firm may outsource a portion of its business, the companies that hire you all have the potential to sue you for any financial or physical damage, not to mention personal injury, that they attribute to your actions.
Conversely, some clients require their consultants to carry professional and general liability insurance as a cost of doing business. Your professional reputation grows in their eyes when you have the foresight to protect yourself and them from unanticipated outcomes. Clearly, you can be trusted as a responsible, serious partner in any enterprise you undertake.
Do Business Contracts Negate the Need for Coverage?
In short, the answer is no. Even the most carefully worded agreement, stating, for example, that you can in no way be held responsible for damages that exceed any revenue accrued from a project, is questionable. The courts usually hold that no party can sign away their rights. Of course, the only way to test a contract’s validity is to open yourself to a lawsuit. Clearly, the wiser course is to protect yourself as much as possible.
Whether you run a small consulting agency or operate as a sole proprietor, you expose yourself to damages if you aren’t protected by some level of insurance. As an independent operator, you need someone to have your back. At NOW Insurance we provide professional and general liability to many types of consultants. Our policies are simple, fast and affordable to help take the burden off of entrepreneurs.