Do Independent Contractors Need General Liability Insurance?

When you set up your own business or start working as an independent contractor, you need to think about what kinds of insurance you might need. One of the most crucial policies is general liability insurance because it protects you from expensive lawsuits related to property damage or personal injury. Because we live in a litigious society and anyone can sue another person or entity, the vast majority of general contractors need this kind of policy.

Fortunately, liability insurance doesn’t cost a lot, and it’s relatively easy to set up. Sometimes, the policy can be combined with other types of insurance, such as errors and omissions, vehicle or property insurance, and workers’ compensation. Read on to find out whether you should look into getting a policy and if so, how you can find one that suits your needs.

Do Independent Contractors Need General Liability Insurance?

The short answer to this question is “yes.” Almost every independent contractor should take out a liability insurance policy to protect themselves from lawsuits that could ruin their career and personal finances. Remember, there are very few restrictions when it comes to filing a lawsuit, so one of your clients or a member of the public could sue you even if they don’t have a strong case.

Although they might not win a lot of money, you’ll still have to go through the legal process, which costs a lot. If you’re insured, your policy will cover all the legal fees, so you don’t have to worry about going into debt. What’s more, the insurance company will have to pay the plaintiff on your behalf if they are awarded any compensation.

What Kinds of Issues Does Liability Insurance Protect From?

Liability insurance protects you from a range of issues, the most common ones being property damage or personal injury. For example, if you run a landscaping business, you might lose control of one of your machines, which then drives into your customer’s car and damages it. Your customer can then sue you, and unless you have the proper insurance, you have to pay for all the repairs to their vehicle.

Another example is a painting contractor who is working at a client’s office and spills some paint or water. If someone walks in, slips on the liquid, and breaks a bone, they can sue the contractor and request compensation. Liability insurance will pay for the legal fees, the person’s medical bills, and their loss of income due to the accident.

What Kinds of Contractors Need Insurance?

As discussed, almost every contractor needs a liability insurance policy. However, not every field is equally risky, and the amount of insurance you take out depends on your industry. Someone working as a freelance writer, illustrator, or website designer from home is much less likely to get sued than a contractor who visits their customers at home and operates heavy equipment.

Before you decide on a policy, speak to an experienced insurance agent. They can help you identify your risks and make sure you choose insurance that covers you adequately. One aspect that is often overlooked is advertising. If you market your services to members of the public, you will have to make sure that potential issues related to your ads are covered. In the past, people have been sued due to false advertising and unsubstantiated claims.

What About Employees? 

While independent contractors should almost always take out insurance, employees don’t usually have to because their employer’s policy covers them, too. If you work for the same firm repeatedly, you have to clarify your status to determine what kind of insurance you have to take out. You should also speak to the companies you work with to determine what policies they have and what types of situations are covered.

How Much Does Liability Insurance Cost?

The cost of general liability insurance varies significantly. Some of the factors that affect it include the size of your business, the risk level, where you are located, and what your claims history is. Most independent contractors don’t have employees, so they might not have to pay as much as bigger firms. In fact, there are policies for under $1,000 per year.

However, these don’t always cover all situations, and you should double-check that the issues that might arise in your line of work are included. You should also think about the limit you’d like to set. The higher the limit, the more expensive the policy. Some companies offer specific policies that cover the individual risks of each industry.

What If I Don’t Want Insurance? 

Most states don’t require you to have liability insurance, so you can choose not to take out a policy. However, this is a risky move, and it can lead to a catastrophe if you’re unlucky. Some studies have shown that up to 90% of businesses are engaged in litigation at some point. Although the rate might be lower for independent contractors, there is still a significant risk.

Another reason why you should get insurance is that you might have more business opportunities that way. Many companies and individuals might not feel comfortable working with someone who is not insured, so they might not offer you work unless you’ve taken out a policy.

What Other Types of Insurance Might You Need?

General liability is the most important type of insurance for most small businesses and independent contractors, but that doesn’t mean it’s the only policy they’ll need. There are other risks that have to be considered. For example, a contractor might make a professional mistake, in which case their liability insurance is unlikely to cover the damage.

Additionally, most contractors should consider getting some of their property insured. Replacing cars, vans, equipment, and IT devices can be expensive. Contractors must also decide whether they need to get disability insurance and workers’ compensation insurance.

Errors and Omissions Insurance 

Liability insurance covers general problems, but it won’t protect you against alleged professional negligence. If a client or customer sues you because they believe you didn’t do your job correctly or you gave them bad advice that caused them to make a mistake, they can ask for compensation. This kind of lawsuit can be extremely difficult to handle, so it’s best to be protected.

Although businesses that perform physical work like construction should consider getting errors and omissions insurance, it is even more important for people who offer intellectual services. Lawyers, doctors, financial planners, counselors, and therapists all give advice and make recommendations, so they are at risk.

Vehicle Insurance 

A new van or truck might cost several tens of thousands of dollars, and even a good used vehicle is often over $5,000. To protect this asset, you can take out business vehicle insurance. This policy covers you if something happens to your car, for example, if it is damaged in an accident, if there is a fire or a natural disaster, or if your car gets vandalized or stolen.

Property Insurance

Just like your car, you might have to insure some of your equipment. Many independent contractors use machines, tools, and electronic devices to carry out their work, and replacing these items can be extremely expensive.

If you would find it hard to replace some of your equipment or you would have to go into debt to do so, you should consider taking out business property insurance. There are also policies that can protect buildings, for example, if you have a small office or a central location where your customers visit you.

Disability Insurance  

Employees who get injured or sick and can’t do their job for several months often still get paid by their employer. But when you work for yourself, you don’t have such a safety net to fall back on. Instead, you’ll have to either live off your savings or go into debt.

To prevent this, you can take out disability insurance. There are various policies. Some of them protect you if you develop a permanent injury or disability, while others also cover temporary issues. Your insurance agent can help you choose the policy that fits your individual financial situation.

Workers’ Compensation Insurance 

You only need workers’ compensation insurance if you have people working for you. This type of insurance protects you against lawsuits filed by your employees, either due to an injury, damaged property, or discrimination.

How to Find an Insurance Policy 

If you’re confused or overwhelmed by all the policies available to independent contractors, you’re not alone. Finding the best insurance is hard, and you shouldn’t have to do it alone. There are specialized insurance agents who can help you sort through the various options and decide which types of insurance you need to purchase. They will take into consideration your industry, your specialization, and your financial situation, so you get the best deals.

Almost every independent contractor needs general liability insurance. Although most people won’t have to deal with a lawsuit, the potential issue can cost you millions and cause you to go bankrupt. To find a good policy, you should speak to an insurance agent, who can put together a list of quotes and help you find the most suitable one. Contact us at ISU Armac and book a consultation or request quotes for your business.