Is freelance business insurance a worthwhile investment? Yes, it is, and it’s not just for big companies.
Anyone can make a claim against your business. No matter the type of business, there are risks associated with opening your company up to customers or just operating within a community. Independent professionals can still face lawsuits, client disputes, and operational risks.
Freelancer business insurance is a layer of protection keeping your business operational even when things go wrong. But that doesn’t mean all types of insurance are the same. You may have very real concerns. How much is small business insurance for freelancers going to cost you? Can you afford it? We’ll break down the expectations and show you why you can’t go without coverage.
Do freelancers need their own insurance?
Freelancers may need business insurance because they can be personally responsible for business-related costs or claims, especially if they operate as a sole proprietor instead of forming an LLC or corporation.
In some situations, insurance may be required to operate your business:
- Client contracts may require you to obtain and maintain coverage for the entire length of the contract.
- Property owners may require businesses leasing workspace to maintain quality coverage that protects their operations.
- Owners may require freelancers working onsite to maintain their own, separate insurance, even if you are working within a company to provide services.
- You are a part of some vendor platforms or marketplaces that require you to maintain insurance (make sure to read those terms of service!)
Freelance business insurance isn’t legally required for every freelancer. The need for and type of coverage you obtain depends on the type of work you do, the industry you are in, the risk to you and others on a day-to-day basis, and the client’s expectations.
Why freelancers consider business insurance
Business insurance for freelance workers actually supports your own needs and reduces the risk of how you operate your business. Even if you do a perfect job every time, mistakes, accidents, and disputes can occur that cost you significantly. Consider the following examples:
- Client disputes: A client isn’t happy with the work you’ve done for them, or they run into complications later that they believe are your fault.
- Accident property damage: Something happens at your place of work, causing damage to your equipment, inventory, or computer systems, such as a fire, smoke damage, or burst pipes.
- Claims for professional mistakes: You make a mistake in your recommendations or professional opinion given to a client, and they suffer monetary or other damage from taking your advice.
- Data breaches: A data breach or cybersecurity threat exposes your clients’ or employees’ personal information, and you could be responsible for the outcome.
- Income disruption: Some type of covered event, such as a fire, causes you to shut down your business for repairs, and you depend on your income for your personal or business financial responsibilities.
Some claims are much more significant than others. But even small claims and legal disputes can become expensive if you don’t have freelance business insurance to protect you.
What does freelance business insurance cover?
You need a policy that’s right for your business and the way you operate. Most often, freelancers combine the various types of coverage available into a single plan that provides protection from most risks. A comprehensive assessment of your business insurance needs is essential. Many businesses need:
- General liability insurance protects you from mistakes you make that cause others harm
- Professional liability insurance, often called errors & omissions coverage, protects when giving professional advice to your clients, patients, or customers
- Cyber liability insurance to protect against hacks and data breaches
- Commercial property insurance to safeguard the structure you work in, depending on whether you own it, and your assets
Many freelancers can use business owner’s policies (BOP). It lumps together several types of coverage into a single policy. This typically includes property insurance, general liability, and business interruption insurance.
The type of freelance business insurance you need will differ from other companies based on your size, risks, and assets. You don’t always need all of these protections.
Freelancer business insurance examples
Let’s be practical. When would you need business insurance for the freelance work you do? Here are some very common instances that happen to freelancers:
- A client claims financial loss after a project mistake. They want you to pay for the losses they say your workmanship or guidance caused.
- A customer visits your location, whether that’s a leased space, a home office, or a studio, and falls. They have thousands of dollars in medical bills from striking their head, which they say you must cover.
- You caused damage to a client’s property during a job, and they expect you to pay for those losses.
- Someone hacks into your client accounts, accessing personal names, addresses, and payment details.
In each of these situations, if you have the right coverage, you gain financial protection critical to the way you operate your business.
Freelancer business insurance cost
So, how much is small business insurance for freelancers going to cost you? It depends on numerous factors, including the type of work you do and the coverage best suited for your situation.
Like any form of insurance, the amount you pay depends greatly on the amount of risk you present to the insurer. Some forms of insurance are very low, making it a bit easier to make a decision. However, other policies can be more expensive, especially in a high-risk industry. Consider some of the most common factors that influence the cost of business insurance for freelancers.
- Your industry: If you are starting a construction business, your risks of injury and loss are higher than those of someone who provides social media management services from their home. High-risk industries are those where a significant risk of harm is possible.
- Revenue: The bigger your company, the more your insurance coverage needs to be. It’s not directly related to just your revenue, but the cost of coverage must be enough to provide compensation that meets your expectations if that income is cut off.
- Location: Where you operate matters as well. That includes not just the city or state you are in, since those costs differ, but also if you operate in a leased space, your home, or a customer’s property. Some locations will simply be riskier than others.
- Claims history: Insurance companies typically charge more for insurance coverage for those who file a claim more frequently. They believe you are more likely to file another claim in the future.
- Coverage limits: The more coverage you have, the higher the cost. That doesn’t mean it’s worth buying the least expensive protection.
Work closely with your insurance company to determine the most affordable structure of coverage for you. But remember that insurance that doesn’t offer enough coverage doesn’t help you.
Because there is so much diversity in freelance work, location, and the type of risks present, it’s hard to provide a range for how much business insurance for freelancers will cost. It may range from $300 a month in a very low-risk industry to as much as $2000 a month in client-facing, high-risk professions.
Most often, insurance companies will provide you with a free quote. That allows you to compare policies and providers to determine which can offer you the most affordable protection.
Which freelancers are more likely to need insurance?
All freelancers face some type of risk, but some take on more risk than others. It’s not about how big your company is, but the risks present to it. Examples of those that likely need quality, comprehensive coverage include:
- Consultants or advisors providing guidance and advice to others, especially if providing financial information
- Designers and marketers are making promises to customers and clients that could go wrong
- Photographers and creatives are in situations where their work leads to problems with the finished product
- Freelancers working on client property of all types, especially if you have employees with you
- Freelancers handling any type of sensitive customer data, including payment information or Social Security Numbers
In most situations, risk depends on the nature of the work you do. It is far less about the income level you have than about the risks present in just providing your service.
Does an LLC replace freelance insurance?
A Limited Liability Company (LLC) does not replace freelance insurance. LLCs and insurance are very different tools that your business may need.
If you’re asking, what is an LLC? You’re not alone, let us break it down for you:
An LLC is a business formation that separates your personal assets from your business assets. It creates a dividing line that protects your assets from claims made by your customers or clients.
Insurance is very different. It covers operational claims and legal costs associated with claims made against you. In a covered peril, your insurance pays out to cover your losses, up to the coverage limits.
Most of the time, freelancers form an LLC to create a legal entity and then purchase insurance to protect themselves from risks. It can be essential in growing your business.
How freelancers can keep insurance costs manageable
Most often, putting in good practices can help reduce your overall insurance costs. Consider these tips:
- Make sure you need the type of coverage you obtain. Over-insuring doesn’t benefit you.
- Compare quotes from several companies, as it’s very common to see differences that are substantial.
- Adjust the amount of coverage you have to ensure it aligns with actual risk, as having too much coverage does not help your company.
- Make sure you understand all business contract requirements before purchasing policies to avoid unknown factors influencing your access to coverage.
Freelance business insurance provides protection aligned with your risks. By choosing carefully, you can keep costs more in line with your needs and business needs. Choose appropriate protection, not maximum coverage.
Preparing your freelance business before getting insurance
Before you purchase insurance, create a foundation that helps insurance companies provide the proper level of protection. Evaluate how your business operates and how it’s structured. Some aspects to consider include:
- Business structure: Are you operating as a sole proprietorship with no significant assets or a large, growing company? Choosing an LLC is often the first step in forming your company.
- EIN (if applicable): If you owe taxes to the government or plan to hire employees, you need to have an EIN in place.
- Clear business activities and service: Outline what your business does, how it works, and your current customer base.
- Organize your records and contracts: This ensures you know exactly what your legal requirements are and have a clear set of steps to understand how your business operates.
Tailor Brands can help with many of these services, helping freelancers to handle the more tedious steps to building a strong foundation for your company. That includes forming an LLC for you, organizing your business documents and information, and helping you obtain business insurance during the setup and growth of your business.
Here’s why it matters. When you choose a service like Tailor Brands, you have a single location to get your business set up and working within all requirements. So if you’re looking at starting a freelance business, we’re here to help and give you all the tools you need to grow.
Remember that the coverage and pricing depend on the insurer, the business, and the level of risk. Having a strong foundation in place demonstrates the potential solidity of your company’s financial goals and objectives.
Conclusion
Freelancer business insurance is a necessary investment in most situations. Even though you are a smaller company, you are facing many of the same risks that larger businesses have. Choose insurance coverage that matches your specific risks based on the type of work you are doing.
There’s a lot to juggle. You may not need coverage early on in your launch, but others may need it immediately. By taking the time to carefully consider the freelance business insurance options and how well they align with your needs, you can make better, more informed decisions.