Getting some freelancer insurance can be a smart move. Because freelancers are essentially business owners, they have a certain level of exposure to legal liability. Freelancers are responsible for running their businesses, which comes with responsibilities to the government. They are also responsible for the work that they agree to take on. This means that most work-related mishaps are their responsibility. Freelancer insurance protects freelancers in case something really bad happens.
Understanding Freelancer Insurance
Technically speaking, a freelancer does not earn a salary but instead gets paid per project or task. This makes them independent contractors. (Although there are differences between a freelancer vs contractor.) As such, they usually take on either short-term work. They can also take on recurring tasks for the same client that don’t make up a full-time job.
The government looks at freelancers as small business owners. Because they are not salaried, regular employees, they are basically self-employed entities. (Again, there are nuances between a freelancer vs self employed person.) Think of an independent dentist, accountant, or a private investigator. They all work for themselves.
Freelancer insurance serves entrepreneurs and virtual businesses that do not have the protection of a mother company. Say a work-related incident causes some kind of damage or loss to a client. As an independent, a client may hold the freelancer liable. Insurance is protection for not only your business, but for yourself and your assets, too. This is vital for sole proprietors, who essentially run the business under their own names.
Different professions carry different forms and levels of liability. The risks depend on the work being done. We do see basic insurance policies, though, that cover the most common ones that freelancers face.
Types of Freelancer Insurance
General Liability Insurance
This policy type provides protection against physical damage claims. Freelancers may need this insurance only if they rent an office or entertain clients at their place of business. General liability insurance basically protects a freelancer in case of third-party accidents. This generally covers client injury and accidents that damage client property. It also includes copyright infringement, however, and other damages relating to advertising.
Professional Liability Insurance
We find this insurance, also known as errors and omissions insurance (E&O), to be very useful for most freelancers. The average policy covers mistakes or negligence on the job that negatively affects a client. It comes in handy when an oversight or missed deadline, for example, causes a client to lose money. When a client sues a freelancer, it takes care of legal costs.
Business Owner’s Policy
We recommend this policy for freelancers who own their own business property. It adds the benefits of commercial property coverage to basic general liability insurance. You even get a discount, normally, when you buy them together. This gives you protection against business property damage. This includes stolen or lost equipment, damage from fire or storms.
Cyber Liability Insurance
Cyber insurance secures freelancers against the general threats of working online. In the past, this insurance would benefit mostly IT professionals and others working in similar fields. Nowadays, it provides protection to a wide array of digital professionals.
Data breaches and cyber threats can impact anyone transacting business online, especially if they store personal information. As more and more people transition to remote work, this policy type becomes more valuable. If a data breach or cyber attack should cause damage, this insurance helps a freelancer to recover financially. It mostly covers data breach notification and investigation costs. It can also help them with the costs of hiring a public relations professional help to repair a damaged reputation.
Health Insurance and Workers’ Compensation
Personal health insurance options for freelancers are much the same as any individual policy that offers personal health coverage. Many of these general health insurance policies do not cover all types of work-related medical bills, though. This is where workers’ compensation plans come to the rescue. Although mostly used by employers to cover lawsuits from employee injuries, workers’ comp works or freelancers, too. It even provides some disability benefits.
Income Protection Insurance
Income protection policies come in different forms. Generally speaking, they secure freelancers against loss of income, mainly from illness or injury. It runs for a longer term than the other types discussed here. What income protection does is give a freelancer who cannot work a regular income until retirement or returning to work.
Assessing Your Need for Freelancer Insurance
Freelancers need different insurance bundles depending on the industry they work in and the size of their projects. Their specific roles can also call for different levels of protection. If you are a business owner who wants to purchase coverage for a freelance hire, you need to factor in the size of your business, too.
The guidelines for choosing insurance types generally relate to the coverage amounts a freelancer might need. Focus on weighing the types and levels of risk you face when pre-selecting bundles.
In some cases, freelance contracts can determine what types of insurance a freelancer needs. Always check with clients if they have any specific coverage requirements before proceeding with applications.
Choosing the Right Insurance Provider
Many insurance providers offer the same or very similar coverage and premiums. So, what factors can help you when selecting an insurance partner? We think that the following qualities are most important.
Strength and Stability
Always shortlist only those providers who have a long-standing good reputation in the industry. A solvent company will best be able to fulfill its obligations. You want to make sure you partner with a company that can meet your needs. This means they can give you reliable coverage and promptly handle claims. No matter what happens, like the recent pandemic, they need to be able to protect your assets.
Service and Accessibility
An insurance company that cannot provide great service is not a good partner. Look into any prospect’s reviews from customers about their responsiveness and reputation around claims handling. You want a partner who is as accommodating throughout the claims process as they are when they are taking your money. Make sure that you will always have access to an agent in case you have questions or concerns. If you can, check out their online tools before you purchase insurance. The more robust their platform, the more likely they will be better at policy management and claims reporting.
Policy Value
Don’t simply look at the price of a policy when comparing each one. Sometimes, you can get much better value in a more expensive policy. Sometimes, you don’t need all the coverage a policy provides, and can be better served with the lower-end one. Get quotes and compare them carefully, Look at items like the premium rates and deductibles. Does it fit your budget and coverage needs?
Implementing Freelancer Insurance in Your Business Operations
Note first that the law does not require freelancers to have insurance. Usually, a contract is enough to protect you and your freelance hires. The best route is to get a lawyer to prepare the contract as well as any other legal agreements you need. These documents will cover all the details of your working relationship, including compensation, scope of work, obligations, and the like.You should have a contract anyway, even if you hire a freelancer who doesn’t have insurance. Moreover, more and more US states and other countries are making contracts mandatory.
When you want your freelance hires to have insurance, you need to make it a requirement. You can easily ask a freelancer to get insured, but you can’t be sure they will buy coverage. You need to put that as a non-negotiable in your contractual agreements.
If you include insurance as a requirement, make sure that you state that in your job description. It should go right alongside any other non-negotiables you might have. Do not wait until the final cut to mention that they need to purchase insurance. Most freelancers who do not take on big money jobs do not actually get insurance as a rule. Insurance is an additional cost that does not make sense to them under most circumstances. They may not be willing to get insured after agreeing to a rate that won’t cover the costs. Always remember, they do not need to get insurance – it’s a choice.
If a freelancer asks you for health coverage or a stipend, you need to check the IRS’s Common Law Rules. They basically classify hires who get benefits like health insurance as regular employees and not independent contractors. This status change could mean that you will get charged employee misclassification penalties.
Frequently Asked Questions
Can multiple freelancers be covered under a single policy?
Because freelancers are essentially separate legal entities, each one needs a separate policy. If you are purchasing insurance for freelancers as an agency, you may be able to negotiate group rates. You may also be able to get a discount if you form a group of independent freelancers. However, each freelancer will still have an individual policy.
How do claims work with freelancer insurance, especially in a virtual team environment?
Hiring freelancers from overseas can make insurance claims trickier, but not impossible. This is why we recommend working with a reliable partner who has more experience outsourcing work. They will know what to do and can offer protection when you transact through their agency. However, even if you are hiring independently, you can work it out. Just make sure that you know which insurance providers can work smoothly with overseas companies. Mainly, you want to specifically require providers that offer liability insurance with worldwide coverage. You should also check with your lawyer about any legal concerns around hiring overseas.
What are the common exclusions to look out for in freelancer insurance policies?
The following are common exclusions for different types of freelancer insurance:
For Professional Liability Insurance, the main one is intentional acts or omissions, which includes fraud, misrepresentation, or willful negligence committed by the freelancer. This relates to Errors and Omissions Insurance, which also often has coverage limitations on claims relating to contractual obligations. For example, they may not cover a freelancer who fails to meet deadlines or fulfill agreements. This, again, is an area of concern, so weigh your choice carefully. Another common exclusion is claims where the freelancer provided advice or services that are outside their area of specialization. This makes perfect sense. It’s also another reason to never ask a freelance hire to do something you didn’t hire them for.
Cyber Liability Insurance also applies exclusions for intentional acts or omissions by the freelancer that lead to data breaches or cyberattacks.
Claims around business interruption and loss of data that result from cyber incidents also include limitations.
In line with this, exclusions apply to claims involving negligence. For example, they won’t cover a freelancer’s failure to take proper security measures to protect against cyber threats.
Intellectual Property Infringement policies normally limit coverage for intellectual property rights infringement like copyright, and patent or trademark violations. Be very careful to check the actual coverage to make sure it fits your needs. Note that discrimination, harassment, and wrongful termination claims are also often excluded because it’s freelance work.
For General Liability Insurance, bodily injury and property damage exclusions apply. This makes sense since most freelancers do not have offices. Moreover, especially for overseas hires, clients are not likely to meet them in person, anyway. Protection for freelancers is also often excluded because digital work doesn’t require it. For example, protection against injury from the use of certain equipment or handling hazardous materials isn’t necessary. Similarly, pollution or environmental damage claims are not needed. Take particular note of exclusions around services provided by a freelancer. This may be where you actually need coverage.
How frequently should insurance coverage be reviewed and updated?
We recommend a routine check-in for freelancer insurance coverage on an annual basis. This is because most policies last for a year. The terms and conditions of different insurance types vary, however. Always check the specific policy period stated. Usually, you will see an effective date and an expiration date. This shows you when the coverage begins and when it stops. If a hire purchases short-term insurance coverage, you will need to follow up on a renewal about a couple of weeks before the existing policy expires. That way, you won’t have to go through any interruptions in work or coverage.
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Final Thoughts
Don’t forget to tap into recommendations when you’re looking into insurance protection for your freelance business or virtual teams. Ask others in your industry about their experiences and do some online research, too. You can get some of the best referrals this way, and learn details that aren’t published on any pages. In the end, however, always make sure that the provider you choose aligns with your specific needs.
