One thing that’s great about flying solo as a freelancer is all the freedom you have in who you work with, where, when and how you work.
One thing that’s not so great is that you’re entirely and solely responsible for everything about your business, including when things go wrong. No one else has your back or will cover your mistakes.
What could go wrong, you ask? Many things, whether they’re under your control or not. Here’s a true story:
A freelancer found an image online that was perfect for his client’s website home page banner. He downloaded the image, cropped it, changed it to black and white, and uploaded it to the website.
Several months later, his client received an invoice for $5,000 for the unauthorized use of a copyrighted image, along with a cease and desist letter from the copyright owner’s attorney.
Irate, the client fired him and threatened to sue.
So now the freelancer’s on the hook to his client for compromising her peace of mind, sullying her reputation and putting her business in jeopardy; has lost a client; and owes compensation to the photographer for his wrongful use of the photo.
If the freelancer had liability coverage, the insurance company would cover the costs. Without insurance, the freelance can be at risk of losing his business and home if he doesn’t have enough bank to cover the losses.
Liability insurance won’t prevent you from making a mistake, but it can cover the costs of making mistakes. Should you be sued, your insurance company will handle the claim and pay your costs and damages, up to the limits of your policy.
What is business insurance?
Insurance is some you do in advance to ensure you’re able to make up for negligence or mistakes you might make in the future. It’s a financial contract between you and the provider that they have your back in the event that things go wrong.
Insurance protects your freelance business, reputation, future, and freedom.
When you screw up, when something goes wrong, when your dog comes running into your studio and knocks your C-Stand over and that expensive ring light you just set up for your client’s product shot is shot, you’re liable for any and all associated costs to fix things and for not being able to meet the deadline promised to the client. Insurance provides protection from the financial burdens of lawsuits.
Type of business insurance
There are different types of business insurance you can run with.
One is Professional Liability, also known as Errors and Omissions (E&O). This protects you from actions taken against you if your work was faulty, you committed an error or you failed to perform as promised.
General Liability covers your equipment in the case of damage, loss or malfunction. If you drop your laptop and can’t boot it, which mean’s you can’t access client files that exist only on the laptop, insurance can cover the costs of repair and file retrieval.
While insurance isn’t required to run your business, it’s a good idea to have protection in the case of:
- Damage to your property
- Copyright infringement
- Damage to a client’s property
- Theft or vandalism
- Accusations of libel or slander
- False advertising
Depending upon which insurance provider you work with, these all can be bundled under one general policy.
When do you need to be insured?
In order to work with certain types of clients — agencies, governments, publicly-held companies or institutions — you’ll be required to carry liability insurance and provide proof of coverage before you can submit a project proposal. The most common amount of liability insurance you’re required to carry is $1,000,000.000.
SIDE NOTE: When insurance coverage is required by a client, you can consider it a pay-to-play situation and might be able to negotiate a higher fee to cover the cost of your insurance premiums.
Other scenarios where having insurance is wise:
If you meet clients at your home-based office or studio
If you work with an intern
If you have employees
If you work out of rented or leased space
If you transport business equipment to on-location work (example: you’re required to bring your laptop to work at a client’s location, or lighting and camera equipment to a remote photo shoot on the beach.)
As a freelancer, you’ll most likely be considered a low-risk small business, making coverage very affordable. And, if you work from home, you can add a rider or endorsement to your homeowner policy that covers your business equipment.
If your legal business structure is an LLC or partnership, your liabilities will be different than if you’re a sole proprietor. So be sure to study what types of insurance you need for the type of business you run. If you take on an intern or employees, you’ll need to provide appropriate coverage to protect yourself and them.
Be sure to shop for the best coverage for your needs at the lowest rates. Purchase only the coverages you need, and what’s required in your industry. Different industries have different concerns. If you’re an interior architect, for example, your liability will be greater than if you’re a calligrapher.
Also, ask about bundling. Some providers offer home and business insurance. Can you reduce the cost of each type by buying both from the same company?
Take advantage of rate discounts offered through professional organizations and affiliate offers. With a member discount, a $1,000,000.00 policy can run less than $25.00 per month, depending on coverage and deductible.
Without trade discounts or bundling, independent creatives should expect to pay somewhere from $500.00–$1,000.00 annually for a $1,000,000.00 policy.
Business insurance costs are itemized on your Schedule C, so the costs can be offset by the income tax deduction.
Tips for shopping insurance
While insurance protects you from being fearful about your future — it provides peace of mind — you should be cautious in the provider the coverage you select. To go about the insurance purchasing process:
- Do your research. Freelancers have different needs than employed creatives. And every freelancer has a unique situation. So you want to work with a provider that understands your situation and has a menu of options you can choose from.
- Ask about the financial security of the company. What’s their backing? How long have they been around? What’s the claim process like?
- What coverages are available, and which ones do you need? What is excluded from coverage? So that you don’t over-pay or under-pay for insurance, you’ll want to know exactly what you’re getting, what your premiums will be, and if they’re paid monthly instead of once for the policy period, what’s the additional cost?
- Set a deductible that’s realistic for you. What will you be able to pay out of pocket should you need to file a claim?
- What’s the process for filing a claim, and how will that claim be handled? What’s the general process and timeframe you can expect?
So, to answer the question, Do freelancers need business insurance? The answer is probably yes, but it’s not required to do business. Just understand that, should something happen and you don’t have it, you could lose a lot.
As a freelancer, your most important business asset is you.
As a freelancer, your most important business asset is you. Why not surround yourself with a solid wall of protection? Protecting yourself also protects your livelihood and ensures your future.
Business insurance providers for self-employed/gig workers:
For home, life, disability, renters, pet and health insurance:
DISCLAIMER: This information is offered in good faith for general education purposes only and is not exhaustive. It is not intended as legal advice or opinion. I do not make any warranty about the completeness, reliability, or accuracy of this information. Any action you take based upon this information is strictly at your own risk. I am not liable for losses and damages in connection with the use of this information. You should seek legal and other professional advice when establishing or conducting a freelance business.