How Much Is Insurance For a Consultant?
When you’re a consultant, the promise is that you’re either extremely knowledgeable or an expert within a given field. Clients hire you for your advice as you try to help them achieve whatever goals they’re aspiring towards. And, being that they pay you for this service, there’s quite a bit of responsibility (read, liability) that falls on your shoulders.
In today’s litigious climate, clients are fully capable of hiring a lawyer and suing you for negligence or inadequacy. So, how does a consultant safeguard their practice against potential wrongdoings or errors? How do they protect their business?
The answer is insurance coverage.
What are consulting insurance costs and why do consultants need insurance? And, more importantly, are they worth it? Read on to learn about these and more.
The Varying Policies
Before we dive into the rates a consultant can expect to pay for insurance coverage, let’s first identify the types of policies typically issued. Understanding what insurance consultants need will provide context to the pricing, seeing as often a consultant is best served with multiple policies in place. The policies covered will be:
- Professional Liability Insurance
- Bodily Injury and Property Insurance
- Cyber Liability Insurance
After describing each policy, we’ll add the total services to create an all-inclusive picture.
Professional Liability Insurance
This policy is also known as Errors and Omissions insurance (E&O), and it’s a safeguard against human error or false allegations. Being that most consulting interactions are one-on-one and personal—as this profession is a fairly intimate practice—inherent risks exist.
Say, for instance, a financial consultant claims they can help someone grow their portfolio or scale their business—only for that person to experience financial ruin. This client, now down on their luck, might decide to sue for negligence. A lawsuit such as this could be the end of a consultant’s business.
Professional liability coverage protects them. And, sadly, despite the honesty of the services rendered, a consultant can still be sued by a malicious or upset client. Thus, professional liability insurance typically protects against:
- Legal fees associated with a claim
- Omissions
- An error made while consulting
- Alleged errors made while consulting
- Professional negligence
- Fines and fees
- Potential settlements
Essentially, an Errors and Omissions policy allows a consultant to erect a shield in the case that they:
- Make a mistake
- Or are wrongfully accused of making a mistake
When it comes to the different types of insurance, it’s imperative this policy is implemented.
Consulting Insurance Costs for an E&O Policy
According to a study done by Insureon, consultants—on average—pay around $650 per year for an E&O policy. That’s short of $55/month.
Additionally, the bulk of consultants put more towards this form of insurance, as 47% of them pay between $600-1200 a year. Only 27% pay over $1,200 and this is typically due to the size and stature of their practice. Thus:
- The average cost of a consultant E&O Policy is: $54.16/month
Bodily Injury and Property Damage Insurance
Bodily injury and property damage insurance is a blanket policy for businesses. In many cases, it’s either required that you have it, or required by the client that you have it—otherwise, they will not contract you.
This coverage usually protects the business when someone is injured or property damage occurs on the premises. However, you may be thinking, that sounds more like coverage you’d need at a gym or auto shop.
Truth be told, general liability insurance can often cover all forms of damage, including a client that claims they’ve experienced trauma or hardship from their visits to your office. And, when you’re promoting your consulting business, you could accidentally replicate another company’s IP.
General liability covers simple and unavoidable mistakes.
Consulting Insurance Costs for a General Liability Policy
Per the same study noted above (Insureon), a consulting business pays—on average—$350 per year. That’s less than $30/month. And among these policies, 61% of policy-holding consultants choose loftier plans and pay between $300-600 annually.
Only 11% pay over $600 per year due to the scale of their business. Thus,
- The average cost of a consultant general liability policy is: $29.10/month
Worker’s Compensation Insurance
It’s not unreasonable that this type of policy either produces an eye-roll or doesn’t make sense. The reality is that many states require—by law—for any practice to have a worker’s compensation policy in place. Even if it’s a one-person business, you might still need to have a policy in place.
Should your consulting firm have employees, then it’s paramount a policy is implemented. Per Entrepreneur,
Today, modern workers’ comp laws provide fairly comprehensive and specific benefits to workers who suffer from workplace injury or illness. Benefits include medical expenses, death benefits, lost wages, and vocational rehabilitation. Failure to carry workers’ compensation insurance or otherwise meet a state’s regulations in this regard can leave an employer exposed not only to paying these benefits out of pocket but also to paying penalties levied by the states.
At its core, worker’s comp—should any injuries occur in the workplace—covers:
- Medical costs
- Legal expenses
- Wages
Should an accident happen at the workplace, this policy will safeguard your consultant business from any financial downfalls, all while protecting the employee as they get back on their feet.
Consulting Insurance Costs for a Worker’s Compensation Policy
Per Insureon, consulting businesses pay—on average—$500/year. That’s a little over $40/month.
Additionally, the majority of consulting businesses pay anywhere from $400-800 annually, with a slim 19% paying over $800. This 19% is for larger-scale businesses that typically house multiple employees. Thus,
- The average cost of a consultant worker’s compensation policy is: $41.66/month
Cyber Liability Insurance
This is crucial for a consultant to obtain. This is used to protect employees and businesses from cyber hacks and the information technology infrastructure as a whole. For example, cyber liability insurance covers the costs of sharing information with a third party as well as migrating a data breach effectively.
How Much Is Insurance for A Consultant?
Now that we have clear visibility on the three most prominent consultant policies and the costs associated, let’s do the math. For one, we can glean that:
- The average cost of a consultant E&O Policy is: $54.16/month
- The average cost of a consultant general liability policy is: $29.10/month
- The average cost of a consultant worker’s compensation policy is: $41.66/month
In which case, if we’re to take the median premium paid for consulting business, then a three-policy plan will cost:
- An all-inclusive consulting insurance policy of $124.92/month
That means that for an E&O policy, worker’s compensation, and general liability insurance if you’re a small to medium-sized business you can expect to pay:
- An all-inclusive consulting insurance policy of $1499.04 annually
How Important Is that $1499.04?
There are many risks inherent to a consultant’s line of work. Depending on their scale, they can advise businesses to move millions of dollars, traders to empty portfolios, individuals to completely reshape their business infrastructure, and depending on the outcome, can potentially lead a client down a bad road.
These risks are typically understood by clients. Yet, when things go wrong, disgruntled clients can easily pick up the phone and call their lawyers—even if you made an honest mistake… or didn’t make a mistake at all.
Additionally, if you have multiple employees, accidents happen at the workplace. Despite the safety of the environment, it’s often mandated by law that you have a worker’s compensation insurance plan in place.
In conclusion, $1500 is a small price to pay as a preventive measure that could end up saving your business in the future. While not all consultants implement every type of insurance listed above, by having these policies in place, you show clients that you take every facet of your business seriously. It allots even further professionalism and credibility.
Consultant Insurance Cost and How It Varies
As you can see from the above, the consultant insurance cost isn’t necessarily static. While these numbers serve as a baseline, there are many factors insurers consider when creating a policy.
These factors include but are not limited to:
- Your Risk Profile – An insurer will look at your business objectively and create a risk profile from this observation. This risk profile will tell them how likely it is that, in your specific operations, something is to go wrong that you could be held liable for. Being that consulting varies industry to industry, one-man shops to fully-staffed firms, your risk profile will greatly influence the liability insurance cost.
- Your Track Record – If you’re looking to insure your company after your third lawsuit, then an insurance company might not be privy to giving you the best policy at a competitive price. Being that you’ve been sued—whether rightful or not—shows that your business has already succumbed to these inherent risks. However, if your track record is clean and you’ve never had any issues, this will affect the price of your insurance policy positively.
NOW Insurance
In today’s lawsuit-happy world, businesses should consider the benefits of consulting insurance coverage. The laws and regulations surrounding services rendered, especially in certain industries, are incoherent and malleable. This creates the opportunity for nefarious or upset clients to sue—which makes it paramount to have insurance as a consultant.
If you’re looking for someone to help you navigate liability coverage options you’ve come to the right place. Here at NOW Insurance, we pride ourselves on doing things right.
Let us provide direction on the type of policies you need, and then safeguard your business in the case of any mishaps! We stand ready to help.
Sources:
Entrepreneur. Workers’ Compensation Insurance.
https://www.entrepreneur.com/encyclopedia/workers-compensation-insurance
Insureon. How Much Does Insurance Cost For Consulting Business?
https://www.insureon.com/consulting-business-insurance/cost
Forbes. Business Insurance: The Safety Net Your Small Business Needs.