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A Consultant's Guide to Understanding Business Insurance

By: Angela Stringfellow

Business insurance can be difficult to understand if you’re not involved in accounting or law. When you’re in the early stages of starting a business, trying to be sure that your assets are protected in the unfortunate event of a mishap or a lawsuit is an added source of stress, in addition to attempting to decipher all the other complexities involved in setting up your new venture.

It’s advisable to speak with an accountant or an attorney during the startup phases, because they can provide professional advice in a number of different areas related to running your business. It is possible, however, to have a basic understanding of what business insurance is, what different types are available, and which types you might need before meeting with an accountant or attorney, and by doing so, you will be in a better position to have a clear discussion with your advisor regarding the pros and cons of your various options.

What Are the Different Types of Business Insurance?
There are four general types of business insurance: Property, Liability, Worker’s Compensation and Specialized Liability Insurance. Property Insurance is needed to protect any buildings or other property owned by the business, and is typically not needed by consultants, unless you operate out of a physical office that is owned by you, or if you use specialized equipment that is very expensive.

Worker’s Compensation insurance is needed only if you have employees, and is used to protect you against claims filed by employees who were injured on the job. This coverage will cover medical costs to pay for treatment of injuries received on the job, as well as lost wages due to the employee not being able to report to work as a result of the injury.

General liability insurance covers against injury or property damage caused by mistakes that you made during the course of doing your job. Every business should carry general liability insurance as a precaution.

There are a few types of specialized liability insurance, including Errors & Omissions Insurance, also known as Professional Liability Insurance, Employment Practices Liability Insurance, and Directors & Officers Insurance. As an independent contractor, a specialized liability insurance you might need to be concerned with is Errors & Omissions Insurance. Errors & Omissions Insurance protects you against claims filed as a result of errors or mistakes you made in the course of doing your job, your failure to complete work as outlined in a contract, or the failure of your work to perform as outlined in a contract. It may or may not be necessary for you to carry Errors & Omissions Insurance, depending on the industry in which you consult. Consult your legal advisor to be sure.

How Do I Know If I Need Professional Liability Insurance (Errors and Omissions Insurance?)
Professional service providers such as financial advisors, attorneys, insurance agencies, and accountants should also carry E&O. Other professions that might consider carrying errors and omissions insurance include IT professionals, programmers, project managers, web and graphic designers, real estate agents, consultants, home inspectors, architects, and engineers. Professions such as software engineering are also subject to E&O.

If you provide knowledge-based services to clients, patients, or customers, that could result in a loss of income or other damage for mistakes that you might make, an omission of information, or failure to act on your part that would have been reasonably expected of you, you should consider carrying E&O. In addition, many clients may require you to carry E&O as well as General Liability business insurances in order to meet their vendor qualifications. Even if it isn’t required by your clients, you should think carefully about how a simple mistake that you might make could result in a significant loss of revenue or reputation damage for a client. Everyone makes mistakes, and if your mistake causes a loss for a client, you could be liable. Before you make a final decision about which business insurances you need to carry, and how much coverage to obtain, consult an attorney.

How Do I Obtain Business Insurance?
Business insurance is typically sold through insurance brokers, and is frequently available through the same big name companies that you might obtain home owner’s insurance or auto insurance through. Many independent consultants work through a portable employer of record, also known as an umbrella corporation, and may be covered under this organization’s general liability and/or Errors & Omissions Insurance group policy. Other companies that freelancers and consultants can work through may not offer general liability and E&O Insurance for free, but might offer access to them at a reduced rate. Another option to investigate is whether a professional association in your industry has access to a discounted policy.

How Much Will Liability Insurance Cost?
The premiums for both General Liability and Errors & Omissions Insurance vary widely depending on the type of service you offer, your annual revenue, the state you do business in, and whether you have a history of claims. A ballpark figure might be $500-700 a year for General Liability and up to $5000 for E&O, and again there may be a lot of variance depending on your unique situation. Some companies are competitive with rates, so it’s worth your time to shop around and get quotes from several insurance companies. Also remember to check professional associations for your occupation. In order to get quotes,, you will be required to fill out an application, including your name, your annual revenue, and details about your business and the services you provide. In addition, you may be asked to provide samples of contracts that you use, proof of your background and experience related to your industry, or policies and procedures that you follow in order to avoid costly mistakes. Again, if you choose to work with an employer of record, such as MBO Partners, you may have access to complimentary general liability and E&O, depending on what kind of work you do.

Start by talking with your regular insurance carrier to see if they offer business insurance. If not, they may have a recommendation of a colleague who handles business insurance and is knowledgeable. You will also want to speak with an attorney to discuss potential liability that you might be exposed to in your consulting career, and make sure the amounts of coverage you plan to purchase will fully protect you. This will help you make an informed decision about carrying E&O Insurance.

Angela Stringfellow is a Marketing Communications Consultant. She recommends that Independent Consultants use a www.mbopartners.com”>Portable Employer of Record to take advantage of numerous benefits, including business insurance coverage.

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