A freelancer’s guide to liability insurance
When launching your freelance business, you’re probably not thinking about liability insurance. You’re likely working with a client or two and find it hard to fathom getting sued. But everyone makes mistakes, and sometimes s*** just happens. You can’t always control the outcomes of a situation or how your clients will react to it. That’s why freelancers and other small business owners should consider liability insurance for their business.
Liability or professional insurance provides protection from the high costs of lawsuits and other claims. The policy limit on your insurance plan is the amount you’re covered for. The premium is how much you pay each year for the coverage. Sometimes, your insurance company will provide you with legal counsel. Other times, they’ll allow you to decide who to hire.
There are many other nuances to liability insurance for your business, covered in the guide below!
Why you need liability insurance for your business
More often than not, freelancers get liability insurance because they have a client who requires coverage. In that case, the client will often dictate what type of coverage you get. This is more typical among corporations and large companies than it is small businesses or startups, but should signal a potential need. Consider liability insurance even if your clients don’t ask for it.
No matter the type of work you’re doing, issues can arise with clients. If you manage social media for a client and say something wrong about them or offensive about someone else, they can sue you for defamation. If you’re a developer or designer, you need to worry about copyright infringement laws.
If you’ve just launched your freelance business, you likely don’t have capital saved to cover attorney fees. If your business doesn’t have capital, your personal assets are at stake – your personal savings, retirement fund, home, property, car, etc. Liability insurance, on the other hand, is affordable and will cover fees and help guide you through the process.
We asked Manoj Bhutani, Senior Account Executive for FounderShield for his insights on liability insurance. He said that when working with corporations, chances are you going to be out-lawyered. Unfortunately, there are companies out there who will sense you don’t have insurance or access to lawyers and may be more likely to come after you.
What type and how much liability coverage you need
Overall, there are two main types of liability insurance, as explained by Freelancers Union. One is professional liability insurance, also known as errors and omissions (E&O) insurance. This protects you and your business from claims regarding a negligent performance of your professional services. Examples include defamation of your client or not delivering on the duties outlined in your contract.
The other is general liability insurance (or GL insurance), which protects your business from third party claims for bodily injury associated medical costs and damage to someone else’s property. Examples include a guest or someone you hire at an event you organized getting injured or food poisoning.
There is also a business owners policy – a combination of E&O and GL insurance – according to Policy Genius. It covers your business’ properly such computers, cameras, printers, or other business equipment. You can also expand your business property insurance to cover digital data. So if you’re a wedding photographer and your SD card is wiped in a freak accident, you’ll be covered when your client (the angry couple) brings you to small claims court.
Manoj said that although there are a number of elements dictating the type of coverage you need, the number one thing is what your business does. As explained above, social media freelancers should be concerned with media liability. Developers should be concerned with intellectual property and copyright coverage. The type of coverage you get largely depends on your industry and field of work.
In terms of how much coverage you need, Manoj and Freelancers Union both said most insurance policies will require $1-2 million in coverage. That will cover most of your bases if sued. Just be sure to read through your policy for any caveats, covered below.
Caveats to be aware of when choosing coverage
The most important thing to note is that your insurance company will always encourage you to settle outside of court. In more situations than not, this alternative is less expensive for all parties and a better outcome than going to court.
Also be aware of what’s called a Hammer Clause. Many insurance companies will include a clause in their policy that states they will not cover you if they offer a settlement for a certain amount that you refuse. So if you don’t settle, you could be left with a hefty bill for attorneys fees plus your premium.
Costs of liability business insurance
Just like health insurance, the costs of your policy is going to depend on your specific situation. In this case, it’s entirely dependant on the type of work you do, the industry your clients are in, how much revenue you earn, and what your business assets are.
Forbes says that for coverage of $1-2 million, you should expect an annual premium between $500-$1000, with freelancers paying on the lower end and small business owners paying on the higher end.
We asked Manoj to quote us for a hypothetical freelance designer with four clients in B2B tech and fashion, making $70k in revenue per year. This freelancer also blogs about their experience designing for clients and sells an online course in design as a side project. He said they would need GL and E&O insurance and could expect an annual premium between $2,000 and $4,000. Of course, the insurance provider would need more information than I provided Manoj with, so there’s a large margin of error there.
How to purchase liability insurance
By now, you’ve gathered that there are several considerations that go into buying liability insurance. Most experts suggest hiring a broker who will help navigate the process for you, analyzing each policy option and providing you with the best options for your budget and needs. This will save you time and frustration in the long run by narrowing options. That said, once you have a short list of potential policies, be sure to read through the contracts yourself for any dealbreakers.
Other ways to protect yourself
Beyond liability, it’s important to protect yourself against other issues, such as nonpayment by clients. At CloudPeeps, we make setting up your freelance business simple. Our platform handles all the paperwork, invoices, payments, and more. To find your next client, join the community today!
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