Being a freelancer comes with many perks. As your own boss, you get to choose how and when you work and can build a business that fits your needs. However, it also comes with plenty of responsibility. Freelancers are responsible for many of the financial aspects of business ownership that a traditional employer would take care of.
One of the things freelancers must consider when they go into business is whether to get business insurance. Keep reading to learn whether freelance business insurance is necessary, the different types of business insurance and how you can save money on your premiums.
Do you need business insurance as a freelancer?
In most cases, freelancers aren’t legally required to carry any type of business insurance, especially if they don’t have employees. However, plenty of experts would still consider it a must-have for freelancers in many industries.
“A freelancer is like any other business [but] just a business of one,” said Steven Griswold, a freelance risk management consultant. “This means a freelancer still has the inherent risks of loss of any other company, but often less protection on both the entity and asset level.”
Business insurance can protect your business assets — and your personal assets, in some cases — from lawsuits. Whether insurance is right for you depends on factors such as your business type, business size and your client base.
Additionally, though federal and state law may not require business insurance for freelancers, the clients that freelancers work with often do.
“Many clients will require all of their vendors to adhere to minimum insurance requirements in order to establish a business relationship, regardless of that vendor’s size,” Griswold said. “This can include general liability, automobile, workers’ comp and, in some cases, errors and omissions or cyber liability.”
What does freelance insurance cover?
Several different types of insurance policies and insurers are available to freelancers, each with slightly different coverages.
“There’s no ‘one size fits all’ policy as the coverage is dependent on what the freelancer is providing for the client,” said Griswold. “A freelance graphic designer, for example, will have drastically different exposures and need for coverage than a freelance clinical trial coordinator or business operations consultant.”
Generally speaking, the purpose of a freelance business insurance policy is to protect you from liability. In other words, if you’re sued and your business is liable for covered damages, your insurance policy would help pay them.
Because freelancers are generally companies of one, they don’t need some of the other insurance policies that larger businesses require, such as workers’ compensation or disability insurance.
Types of business insurance for freelancers
While there are many types of business insurance on the market, there are two key types that are most suitable for freelancers: general liability and professional liability.
General liability insurance
General liability insurance protects your business from various claims, including bodily injury and property damage. It most often applies to freelancers who meet with clients in person, whether at an office, the client’s home or somewhere else.
A classic example of when general liability insurance may apply is if you have a physical office space and a client slips and falls, injuring themselves. It could also apply if you damage someone else’s property while you’re working.
In addition to bodily injury and property damage, general liability insurance can protect against other types of harm, including reputational harm done by your business or violation of a copyright or trademark in your advertising.
A general liability insurance policy also covers legal costs for covered incidents, in most cases, including attorney fees.
Professional liability insurance
Professional liability insurance, also known as errors and omissions (E&O) insurance, is another type of business insurance commonly used by freelancers. This type of coverage protects against liability, just like general liability insurance does. But in this case, it protects against liabilities directly related to your work.
First, professional liability insurance can protect you from loss related to mistakes you made in your line of work that negatively affected a client or customer or cost them money. It could also protect you if you were accused of negligence in your work or if you misrepresented yourself.
Like general liability insurance, professional liability insurance typically covers your legal expenses if you are sued.
How much does business insurance for freelancers cost?
According to the digital insurance marketplace Insureon, the average cost of small business insurance is $42 per month for general liability insurance and $61 per month for professional liability insurance. However, the premium you’ll pay depends on several key factors.
“Costs can vary widely based on factors such as industry, coverage limits and deductible levels,” said John Espenschied of Missouri-based Insurance Brokers Group. “However, freelancers can usually expect a basic liability policy to cost anywhere from $300 to $1,000 annually. It’s a small price to pay for the level of protection it offers.”
Anything that indicates an increased level of risk can result in higher premiums. For example, if you work in an industry where mistakes and lawsuits are common, you might pay higher premiums for professional liability insurance. Meanwhile, you might pay lower premiums for general liability insurance if you have an entirely online business since you’re at a lower risk of being liable for bodily injury or property damage.
A more comprehensive list of factors that could affect your premiums includes:
- Industry
- Business size
- Location
- Time in business
- Whether you have employees
- Coverage limits and deductibles
- Claims history
How to save on self-employed freelancer insurance
Freelancers are on the hook for all of their own business costs, so it’s natural to look for ways to save money on business insurance. There are a handful of strategies you can use to find more affordable policies without sacrificing coverage:
- Shop around for rates: There are many business insurers on the market, and shopping around can help you get the best deal. You can shop around by getting quotes from multiple companies, going through an online insurance marketplace or working with an independent agent or broker who can price shop policies on your behalf.
- Bundle your policies: If you have multiple types of business insurance, you can often save money by keeping them with the same insurer.
- Choose the right coverage limits: A good rule of thumb is that the higher your coverage limits, the higher your premiums. While you want to make sure you have enough coverage to be protected, you should also avoid overinsuring yourself.
- Raise your deductible: If you can afford to pay more money out of pocket for a claim, consider raising your policy’s deductible. You’ll pay more upfront when a loss occurs but less on your monthly premiums, which could work out to savings in the long run.
- Review your coverages regularly: The business insurance policy you need today may not be the policy you’ll need one, three or five years from now. Review your business insurance regularly to ensure it still meets your needs.
Other insurance options for freelancers
General liability insurance and professional liability insurance are those most likely to apply to freelancers, but they aren’t the only options.
First, depending on your line of work, you may need certain types of property insurance. If you have a vehicle for business use, work out of a commercial space or have valuable tools or equipment, you may need a special type of policy to cover them.
Freelancers and other business owners who use a business property have the option of combining their property insurance and general liability insurance into a single policy known as a business owners policy (BOP).
Freelancers should also consider the types of personal insurance coverage they may need. As a freelancer, you don’t have easy access to the types of insurance coverage usually included in workplace benefits packages, including health insurance, disability insurance and life insurance. However, these coverages are invaluable in many cases.
The good news is there are freelance marketplaces designed to help you buy these coverages at a discounted rate.
Frequently asked questions (FAQs)
Location can definitely impact a freelancer’s business insurance needs. First, some states may require business owners, including freelancers, to have certain types of insurance. It’s important to research the laws in your state. Additionally, your location could put you at greater risk of damage, especially if you have a physical office space.
A popular coverage option for combining your freelancer business insurance needs is a business owners policy (BOP). This policy typically starts out with combining commercial property insurance, business interruption insurance (helps cover lost income after a covered commercial property claim) and general liability insurance. You can then add additional coverages to the policy based on your needs, such as accounts receivable or cyber liability insurance.
However, you can’t bundle all types of business coverage under a BOP, including professional liability, workers’ compensation and commercial auto, so separate policies may still be needed.
Cybersecurity insurance protects against risks such as data breaches, cyber attacks, ransomware and online fraud. It may be a good idea for freelancers who collect sensitive client information, including payment information and health records.
Business interruption insurance, also known as business income insurance, can help replace your freelance income in covered incidents. For example, if a fire at your workplace prevents you from keeping your business running, business interruption insurance can help provide income replacement until you’re ready to open your doors again.It’s one of the coverages typically included in a business owners policy (BOP).
