As a freelancer, you are responsible for your projects from beginning to end. You are liable for anything and everything that happens with the project. For a lot of freelancers, this is the reason they got in the game. Even though you’re answering to a client, you’re ultimately your own boss.
The downside? All that stuff you’re liable for. If anything goes wrong – even if it’s not your fault or it’s beyond your control – you could be held accountable in court.
Liability insurance is a shield that will protect you and your business from losing it all.
What is liability insurance?
Liability insurance is a huge umbrella. The idea behind liability insurance is to protect you from all things that you may be liable for. I know that answer sounds like a cop-out. My 8th grade English teacher would be outraged to hear me define the phrase using a word in the phrase.
So let’s dig a little deeper. Liability insurance, more specifically, protects you from lawsuits. Anytime someone could potentially jump up and scream, "I’m going to sue you!", liability insurance can come into play.
Liability insurance as a concept is an umbrella, but you normally don’t buy anything labeled "Just Plain Ol’ Liability Insurance." Instead, there are a bunch of products that cover specific liabilities. In fact, that’s one reason why you need liability insurance: most consumer insurance products that feature some liability coverage, like home insurance, won’t cover your business.
What types of liability insurance are there?
A bunch, but let's focus on the products that are important to freelancers.
It is known by many names – professional liability insurance, errors and omissions insurance – but no matter what you call it, the purpose is the same: protect you in the event that a client is unhappy with the work produced.
In a lot of ways, indemnity insurance is like malpractice insurance for doctors. You would need it if the client is claiming that you did not perform your duties as outlined by your contractual agreement. This could take a lot of different forms. Maybe you’re a web developer and something you do accidentally erases months of client or analytics data. Or you’re a marketing consultant and the campaign you came up with isn’t producing the results you expected or promised. Not everything has to be your fault – some of these things may be beyond your control – but ultimately, you may still be responsible for them.
This type of insurance is a no-brainer. It is, without a doubt, the most important type of insurance for a wide variety of freelancers, especially freelancers who work in the digital realm. If you’re working with smaller clients and your project has limited risk, you may be able to get away without having any indemnity insurance. Like general liability insurance, some larger clients will refuse to hire you if you don’t have indemnity insurance.
General business liability
This is your basic, general, all-purpose business liability policy. So how will it protect you? Let’s say one of your clients gets injured because you were negligent in some way. There are a number of scenarios where this could happen. You could be a carpenter trailing a messy extension cable around the house and your client could trip on it. If they sue, general business liability will foot the bill.
If you’re the kind of freelancer who doesn’t have people over to their home or who would never be in a situation where someone may get injured, you may not need general business liability. However, before crossing it off the list, take a deep and serious look at your business practices. If there’s even the remote possibility that something could go wrong and injure someone, you need general business liability. There’s also a chance that a company will refuse to hire your services if you don’t have some form of general liability insurance.
Business owners policy
It’s the insurance product with a fun acronym – BOP! So, what does it cover? It’s actually just a combo package of general liability insurance and business property insurance, usually at a lower price than buying the two policies separately. Plus, you get the added bonus of saying BOP all the time.
What is business property insurance? It covers your business property! For businesses with offices, that means stuff like desks, chairs, and computers, all of which add up to a pretty significant cash value. For freelancers, this usually covers stuff like computers, cameras, printers, or other business equipment. If you’re a freelancer with a lot of specialized equipment, property liability insurance is key protection in case of an accident or equipment failure.
You can also expand your business property insurance to cover digital data. Let’s say you’re a wedding photographer with thousands of photos from a wedding last weekend and your memory card is washed away by a sudden freak flood. This type of insurance is called cyber liability, and we’ll talk about it in more detail later.
You may be able to get some form of business property insurance through your renters insurance policy or your homeowners insurance policy. If you already have one of those policies, contact your insurance company to see if you can expand your coverage to business property. If your operation is pretty small or you don’t have a lot of business equipment (i.e. nothing except your computer and a few accessories), a renters or homeowners policy with a business property rider could be enough coverage.
Cyber liability insurance
Remember just a few minutes ago when we were talking about that memory card that washed away? If you’re a photographer or videographer, data loss can be catastrophic for a multitude of reasons. For starters, you’ve potentially lost data that is absolutely unrecoverable – you can’t recreate candid wedding photos, for instance. Not only are you going to lose money from not being able to complete the job, but your client could sue you for losing the data!
Cyber liability insurance was created to protect businesses and freelancers who are dealing with a lot of digital data, especially when that digital data belongs to clients. Another example beyond photos and videos? If you have a retail website where you accept payment information like credit cards. If that information is stolen, consumers can sue you for not adequately protecting their data. If you deal in any kind of digital data, you need some form of cyber liability insurance, no matter how small your business is.
Wait, wait! My contract says ______! How can they sue me?
You are correct that most written contracts will protect you from going to court – after all, that’s kind of the point of having a contract. But here’s the deal: if you’re working with a large company, they’re specifically crafting their contracts to work in their favor. Even if you and your lawyer pore over every line, there’s probably a way to interpret it that backs up their claim.
Plus, if you don’t have insurance, it’s expensive to fight a prolonged legal battle. Even if you’re in the right, you still have to pay your lawyer and get your day in court. A study by the U.S. Chamber of Commerce found that frivolous lawsuits can cost a freelancer $2000 to $5000. Since the average liability policy is usually pretty reasonable when it comes to monthly or annual premium, we’d say it’s lot more cost-effective to get a policy than it is to just pay for a lawsuit out of pocket.
What should I be looking for in a liability policy?
Like any insurance policy, you’ll want to make sure you know what you’re getting. With liability policies there are a few big things you want to check out. First up, how much coverage are you getting? $1 million is a good starting number – if you’re a small outfit, it’ll pretty much cover anything life will throw your way. Some large clients may have a specific amount of insurance coverage that they require their freelancers to have.
Your policy may also have a deductible, which means that you’d have to pay a certain amount before your policy kicks in. Having a higher deductible usually makes the policy cheaper because it weeds out some of the smaller claims. However, keeping a low deductible (or no deductible at all) means that you’re covered no matter how many $2000 frivolous lawsuits come your way. Ultimately, you need to judge you and your business’ risk tolerance to make a decision.
Before you buy any policy, make sure you read the whole thing. There may be exclusions – things that the policy won’t cover – that lower the usefulness of the policy. In addition to exclusions, look to see how your policy covers legal fees. Some include legal fees as part of your total liability coverage – i.e., that $1 million number we cited earlier. Some have a separate coverage amount for legal fees, which means that the policy will cover $1 million worth of liability plus a certain amount of legal fees.
Is it going to be really expensive?
There are a lot of factors that go into pricing out a liability policy. It entirely depends on how big your business is, what line of work you’re doing, where you’re located, and the details of the policy. Freelancers who only have one employee (themselves) will pay a smaller amount than other small business owners – probably somewhere between $500 and $1000 annually, depending on the factors listed above.
Don’t forget that your business insurance premiums are tax deductible as a business expense.
When do I need liability insurance?
Day one. Seriously – you never know when a client-freelancer relationship is going to go downhill and they’re going to sue you for one reason or another. As your business grows, you should reassess your coverage needs regularly and add coverage to your policies as you see fit.
How do I get liability insurance?
You can either work with a broker to help you find the coverage you need or you can buy coverage directly from an insurance company. If you have friends or contacts who are also freelancers, ask them what insurance company they use, what their policy is like, and how much they pay. You should also contact a variety of insurance companies to get a personalized quote. We suggest that you start with Insureon.com!
Insureon is an awesome insurance company that makes getting a wide variety of business insurance products very easy. How do we know that? We use them for our own business insurance needs.