I Am a Solo Consultant. What Insurance Do I Need?

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ConsultantsIf you think you don’t need business insurance because you’re a self-employed consultant who works from home, you could be making an expensive mistake. That’s because even though you may not have a commercial workplace, your business could still be liable if someone is injured or incurs a loss as a result of your business activities.

Reasons You May Need Business Insurance

You may think that because you work from home, your homeowner’s insurance will protect you and your business. Some homeowner’s policies do provide limited coverage for business property, such as computers, most provide no coverage for liability. Even a homeowner’s policy with an endorsement for business activity rarely covers liability away from home.

Here are several reasons you should have business protection even if you work from home:

  • Protect your assets. You’ve spent a lot of time and effort building your business. If you are not protected by business insurance, you are running the risk of losing everything you’ve built, as well as your personal assets. If there was a judgement against your business and you can’t pay it, you could see your personal assets seized, such as your home, savings or more.
  • Your clients require it. Your clients or potential clients may require you to carry business insurance because they do not want to run the risk of being held liable for any damage, injury of harm that you may cause while you are working for them. They want to be sure that the risk will not be transferred to them should you be liable.
  • Your own peace of mind. No matter how unlikely you may think the chances are that you’ll be the subject of a lawsuit. But if a client filed a suit against you, would you have the financial resources you need to defend yourself and your business?

Types of Insurance

If you’re an independent consultant or are self-employed, you have probably already purchased some types of insurance, such as healthcare insurance of insurance for your business vehicles. Here are some other types of insurance you should consider if you are solo practitioner:

  • General liability insurance. Also called business liability insurance, this insurance protects you and your business if someone is injured on your property or because of your business activity.
  • Business property coverage. This type of insurance protects your business property for loss due to damage or theft. If you work from home, be sure to check with your insurance broker to make sure you have the correct type of insurance to meet your needs.
  • Business interruption insurance. If a natural disaster or other event beyond your control forces you to close your business, business interruption insurance will reimburse you for lost revenue during the period you were forced to close.
  • Personal liability insurance. In some cases, you might be the defendant in a lawsuit that goes after your personal assets as well as your business assets. If that happens to you, personal liability insurance, or excess liability insurance, can protect your home and other personal assets.
  • Professional liability insurance. General liability insurance protects you and your business if someone is injured on your property or physically hurt because of your business activity. Professional liability insurance, also known as errors and omissions insurance, protects you if you are sued for not fulfilling your professional obligations, or if the work you did for your client was incorrect.

What Does Professional Liability Insurance Cover?

Let’s say you are an independent consultant who develops websites for clients. You’ve been hired to develop an eCommerce website for a candy company so it can sell its products online. A few days after the new website is launched, your client discovers that the checkout program you developed is calculating shipping charges incorrectly.

All the packages they put in the mail are all being returned for insufficient postage. They determine that repacking the orders, reshipping them with the correct charges and apologizing to customers for the late delivery has cost them $125,000 and they sue you to recover the money. Professional liability insurance will protect you from such a lawsuit.

It’s easy to look at these examples and downplay the risks. You may be thinking, “My software would never fail completely like that. I would at least have a backup to the legacy system. I use virus safeguards, so an attack wouldn’t be my fault.”

However, your risk isn’t based on the likelihood of your losing a lawsuit but rather that of a client bringing one against you. Even if the case is completely baseless—and the judge agrees with you—you could go bankrupt defending yourself against the claim.

Among the types of errors that could lead to a lawsuit from a client are:

  • Documentation errors
  • Misrepresentation of products or services
  • Violating the law
  • Poor advice
  • Theft
  • Breach of contract
  • Revealing a client’s proprietary or confidential information
  • Misusing a client’s property or data

What Are My Risks?

In addition to the financial risk you may be taking if you do not have professional liability insurance, there are other risks you may face at the same time. Some of them are:

  • You risk losing business. Many clients will want proof that you have errors and omission insurance before they will hire you. They want assurances that if you make a mistake or do not perform adequately for them, that you have insurance to cover any losses they might incur.
  • Clients may take advantage of you. If a client knows you do not have professional liability insurance, they know that a lawsuit could put you in danger of losing everything you have in your life, including you home and other financial assets. There are some businesses out there that would use that information as leverage to meet their demands and make concessions after you have completed the work they contracted with you to perform.

Not every solo consultant needs professional liability insurance. In some cases, the nature of the work you perform could make in unnecessary. In other cases, you could protect yourself through other methods, such as clauses in contracts or other agreements.
The only way for you to know for sure is to meet with an insurance broker to discuss your business situation.

Give us a call at 215-997-5800 to talk with Scott Hartzell about professional liability insurance and your business. Scott has been helping business owners get the proper insurance for their businesses for more than 32 years.

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