You’ve finally done it: You made the jump and are now your own boss. By becoming an independent contractor, you’ve just embarked upon one of the most fulfilling adventures of your life.
But what’s an adventure without a couple of challenges?
For starters, independent contractors, depending on the type of work being done, most likely need insurance to provide coverage for on-the-job accidents, product liability, slander and libel, property damage, and more.
There’s also auto insurance for independent contractors. You never know what could happen while you’re on the job, and the smartest thing for you to do is never take a chance.
Another factor that comes into play for independent contractors is budgeting. Especially for those just starting out, properly budgeting for expenses, both personal and related to your business, is crucial for long-term success and avoiding financial mistakes.
With that in mind, let’s dive into our finance and insurance guide for independent contractors.
Which independent contractors need insurance?
The types of insurance coverage you’ll need largely depend on the work you’re actually doing, but relevant policies usually stretch across multiple professions.
Some of these professions include:
- Construction contractors
- Animal trainers
- Graphic designers
- Product designers
Even writers may find themselves needing insurance coverage. As a rule of thumb, when you first venture into the world of independent contracting, you should at least thoroughly research the various types of policies available before making any decisions.
Let’s take a look at some specific policies you’ll come across in your research.
General Liability Insurance: When Life Happens
Say you’re a contractor on the job one day working on a project at a client’s location. You realize you’ve left an important tool in your truck, so you pause your work and walk out to get it. While you’re gone, your client wanders in to check up on your progress and steps on a tool you left on the ground, puncturing their foot.
Your client tries to sue you for negligence. Luckily, you’re insured, and your general liability insurance (GLI) covers your expenses and legal fees. This is a textbook example of how general liability insurance for independent contractors can protect you on the job.
General liability insurance helps you cover any claims against you that are brought up during your normal hours of business operation. GLI can be bought as a standalone policy or bundled up with a business owner’s policy, or BOP.
Errors and Omissions Insurance: for Those ‘Oops’ Moments
While general liability insurance can provide comprehensive coverage, it doesn’t actually cover professional negligence. In other words, if you’re acting the part of a consultant to a client and the advice you give them results in loss or damage to their business, they can sue you.
To cover these circumstances, you’ll need errors and omissions (E&O) insurance. E&O insurance is ideal for accountants, financial planners, interior designers, and other professions that often play the role of a consultant for their clients.
An example of E&O insurance in action might be if an accountant gives bad financial advice to a business owner. As a direct result of the accountant’s advice, the business owner finds themself in financial and even legal trouble.
The business owner sues the accountant, who then has to cover legal fees and other costs associated with a drawn-out defense. If the accountant has E&O insurance, it’ll cover their legal fees as well as damages awarded to the business owner.
Workers’ Compensation: When You Hire Others
Contractors who subcontract their work (such as construction contractors, electricians, and other workers who employ help) should look into workers’ compensation insurance, an important component of business law. Some states legally require you to have this type of insurance, while others do not.
Workers’ compensation protects your workers if they incur an injury on the job and reimburses them if they can’t return to work. Having workers’ comp on hand not only gives your subcontractors or employees peace of mind but also makes you a more attractive employer as a result.
What about auto insurance?
If you’re an independent contractor who works with physical equipment, chances are high you’re using your own personal vehicle to travel from job to job. Your personal auto insurance coverage doesn’t cover commercial uses of your vehicle.
You’ll need commercial coverage, which usually goes for anywhere between $100 and $200 a month.
Insurers will ask about your profession before you actually acquire a policy to determine how likely you are to get into an accident and how much your premiums should be.
If you’re spending a considerable amount of the day on the road almost every day, you’re likely to pay higher premiums. On the other hand, if you’re not driving so much, you’ll save more money.
The bottom line is that, if you’re using your personal vehicle for business use on a consistent basis, you should look into commercial coverage.
What if you’re driving for another business?
Another important thing to keep in mind is that if a company hires you as an independent contractor to drive for them, insurance is your responsibility. At the same time, a business can’t force you to insure their own vehicles.
For example, if you’re hired as an independent contractor for John’s Delivery Company and they give you a vehicle to use, you should clarify all doubts and expectations about insurance on that vehicle.
Ask them if they at least provide liability coverage for bodily injuries and property damage, but remember that they can’t force you to insure their vehicle. You may need to be added to a non-owner car insurance policy.
However, if you’re driving for a rideshare company like Uber or Lyft, they may have no problem providing liability coverage that covers any damages inflicted on your passengers or other third-parties, but not for any that you incur. You should look into additional coverage, including a commercial auto insurance policy, to hedge your bets.
What happens when you forego insurance entirely?
If you decide to forego general liability insurance, E&O insurance, and commercial auto insurance entirely as an independent contractor, you’ll be taking enormous risks on the job.
Those monthly premiums hurt, especially if you don’t end up using your insurance coverage for a while. But you’ll be happy you have it when something completely out of your control happens to a sue-happy client of yours.
If you don’t have insurance, you’ll have to pay for everything out of your own pocket if something happens to you on the job. Being insured also makes you more attractive to potential clients and increases their chances of hiring you, providing all-around peace of mind.
Luke Williams writes and researches for the car insurance site, CarInsuranceComparison.com. His passions include writing about personal finance, insurance, business law, and other ways people can save money and drive with peace of mind.