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Do Freelancers Need Business Insurance?

Freelancers Need Business Insurance

The number of people participating in the gig economy is growing every day. It’s estimated that 59 million people are currently working as freelancers, making this a new normal.  In fact, here are a few facts provided by Fortunly about the gig economy that may surprise you:

  • Over 90% of US workers would consider going freelance.
  • 47% of the freelance population is female
  • Nearly 50% of millennials use gig economy platforms to find work
  •  The total income generated by the gig economy is estimated to be $1 trillion
  • Over 50% of contractors work over 40-hour a week

It makes sense, the flexibility of freelance work can be appealing. But it begs a question, do freelancers need business insurance?

You started your freelance gig because of the freedom. As your own boss you can set your own hours, and choose your clients or projects. It’s wonderful. However, in case you missed it, along the way you became a small business owner. You are now running a business, and businesses all have inherent risks – even a freelance business.

So, if you’re considering leaving your corporate job, or you’ve already started taking freelance work, the right insurance coverage can help protect what you’re building. Let’s explore some of the reasons why this is a good idea.

Does your freelance business even have risk?

When you launched your freelance gig, the startup expenses were much less than a brick-and-mortar business. It’s one of the appeals. However, you still have assets to perform your work – and those assets have value. Additionally, when you take work, advertise or market your business, perform your professional service, or provide products, each of these basic business functions comes with the risk of liability. These are the basics of a small business’s risks and alone may be the incentive to buy business insurance

When you consider the property or equipment you use to perform your freelance work, ask yourself a few simple questions. If something destroyed your work area, equipment, or work product would you:

  • Easily recover your work product?
  • Could you easily replace your equipment or other work-related property?
  • What would it cost to replace your property or lost work product?
  • How would you pay for lost property or work?
  • Do you have reserve capital?

You may think your home insurance provides you protection. Well, it isn’t designed for commercial use and may not provide coverage.

What happens if you make a mistake on a job, even if unintentional, and your client claims that your acts caused them a financial loss? What if they demand you pay for those damages? Do you have sufficient reserves to pay for a lawsuit? Even if you’re not negligent, the cost of a lawyer to litigate or negotiate for you could be costly.

Why you need freelance business insurance

If you haven’t been involved in a lawsuit, you may not fully appreciate how much they cost. For this reason, you may not be concerned with being sued. Additionally, you may think your office equipment is easily replaceable. For these reasons, you may not think your freelance business needs insurance.

Here are some considerations if you’re still wondering if freelancers need business insurance.

If you want to make money as a freelancer, you’re going to need clients. Larger clients hire out more work, pay more reliably, and often request larger jobs. However, these types of clients prefer working with businesses and freelancers that have proper business insurance. If you’re going to bid for these jobs, you’ll often compete against more conventional business models. Therefore, having the proper insurance coverage is necessary. It will help build confidence, display professionalism, and exhibit financial responsibility, and reliability.

Evaluating the need for freelancers to have business insurance isn’t necessarily different than any brick-and-mortar business. All business endeavors have inherent risks. A business, freelance or otherwise, should carefully assess its need for business insurance.   Just like conventional businesses, freelancers can suffer a data security breach, be sued for errors in their professional services, or even be challenged for libel, slander or copyright infringement from a competitor. 

Lastly, and this could have been the lead, many larger clients will require you to provide evidence that you carry insurance to sign a contract or get paid. This is called a certificate of insurance, and it’s a common requirement when businesses hire contractors. In this way, for the freelancer and conventional business alike, having insurance is simply a cost of doing business.

What’s the right freelance business insurance?

To determine the right insurance for your freelance business, you need to assess your risk. You may want to ask a few questions before you buy business insurance. You need the coverages that are right for your unique business.

What are the most common coverages?

Regardless of your specialty or business segment, there are some core business insurance coverages the business owner should consider. The typical freelancer should consider these protections as well:

  • Business Owner’s Policy: Generally speaking, this is the most common policy purchased by small business owners. It’s a convenient and affordable package that combines two of the key protections for small businesses, general liability insurance and commercial property insurance. The general liability protection is for damage claims or lawsuits from third parties for injury or property damage. However, it also provides advertising liability protection. Commercial property insurance is for your equipment, electronic devices, inventory, or real property (if you have it).

  • Professional liability insurance: This coverage is frequently referred to as E&O or errors and omissions insurance. It covers the small business owner if there are claims of damages related to your professional work product should it negligently cause a client a financial loss.

  • Cyber liability insurance: If you will need to take payments electronically, store any client’s personal or financial data, or hold proprietary consumer data as part of your work product, you should consider cyber liability insurance. This protection helps small businesses recover from data breaches, and other digital intrusions incurred by small businesses. Frequently, this can be added to the business owner’s policy, but it can also be purchased as a stand-alone coverage.

It’s possible that your freelance gig requires the use of your car to perform the work, this may require you to need commercial auto insurance. However, if you only use your vehicle to drive to the occasional client visit, you may be able to add business use to your personal auto insurance. Personal auto insurance policies all define business use differently, and some may exclude it entirely, so consult your insurance agent if you’re not sure if you should buy commercial auto insurance.

The bottom line

If you run a small business or operate as a freelancer, buying business insurance is always the right choice. How much and what coverage is the real question. Business insurance will help protect your interests, exhibits financial security, make you a more legitimate option for prospective clients, and help provide some peace of mind.

If you’re concerned about the cost of business insurance, that’s expected. However, many freelancers operate in industries with lower-risk classifications, and the premiums may be less expensive than you expect. If you want to better understand the cost, you can start a business owner’s quote online, or give us a call at (877) 334-7646.

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