Do Independent Contractors Need Business Insurance? 

business insurance and chart


Independent contractors need business insurance both to protect themselves and to as a demonstration that they are, in fact, a separate and independent business.  MBOPartners discusses the types of business insurance and why you need insurance:

Here are a few common types of business insurance that many independent contractors carry:

General Liability Insurance

General liability insurance is often necessary for independents. This insurance covers a wide range of incidents, including accidental damage to a client’s property, claims of libel or slander, and the cost of defending lawsuits.

Errors and Omissions Insurance

Errors and omissions insurance, also known as professional liability insurance, provides protection in the instance that a client incurs financial harm due to an error or omission—that is, a failure on your behalf to perform an integral part of your responsibility on a project.

Home-based Business Insurance

While an insurance policy for a home-based business doesn’t apply to everyone, it’s relevant for independents who choose to work out of a home office. Most homeowners’ insurance policies do not cover losses sustained out of a home office, but an insurance policy for a home-based business can provide the protection you and your clients need.

Why Do You Need Insurance?

Some independents forgo insurance in order to cut costs. However, the cost of resolving even a moderate issue, such as a contract dispute, without insurance can be far more expensive than the cost of premiums. These costs can sometimes be enough to put companies out of business entirely. Protecting yourself with business insurance is not just the smart thing to do, some states may actually require you to have certain types of business insurance to conduct work.

Many of your future clients will also require specific insurance coverage even for very small-scale projects. By engaging you as an independent contractor and putting their project in your hands, clients are placing a large amount of trust in you. No matter how careful you are, mistakes do happen and it is important to guard against them by mitigating risk as much as possible.

What Level of Coverage Do You Need?

The amount of insurance you will need will depend on many factors including the type of clients you work with and the industry you are in. However, expect most clients to require a minimum of $1,000,000 in general liability insurance and another $1,000,000 in errors and omissions coverage. These are good numbers to keep in mind as a starting point. Umbrella policies, which cover costs above and beyond general liability coverage are also recommended.

Source: Do Independent Contractors Need Business Insurance? | MBO Partners

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