The freedom that comes with being your own boss has its challenges—whether you’re a freelancer, 1099er or “solopreneur.” In addition to drumming up deals and juggling clients, you also need to safeguard your business from financially disastrous problems like accidental injuries, damaged property and lawsuits.
That’s why you need self-employed insurance. Think of it as a custom-made small business insurance policy that has all of the essential coverage types to protect your particular business from its unique risks.
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What Does Self-Employed Insurance Cover?
A good self-employed insurance policy has several different types of small business insurance that cover a range of problems, such as lawsuits against your business, lost income due to problems covered by your policy, and damage to your business property.
When you’re putting together a self-employed insurance policy, you may want to start by looking at a business owners policy (BOP). A BOP bundles three foundational coverage types, and it’s usually a more affordable way to buy business insurance rather than purchasing these coverages separately. Here’s what a BOP includes:
Business liability insurance
This covers property damage and bodily injuries caused to others (not including your workers). For example, if you run a food catering business and a guest burns themselves on a chafing dish, general liability insurance can cover the person’s medical expenses. Liability insurance also pays for your legal costs, settlements and court judgments if you’re sued because of an accident.
Business interruption insurance
If a problem covered by your policy causes you to close your business temporarily, business interruption insurance replaces lost income. For example, this would replace your lost earnings if a fire at your business location caused a temporary closure. It also covers money lost due to damaged merchandise and the cost to move to a new location on a temporary basis. This coverage is also called “business income insurance.”
Commercial property insurance
This covers your business equipment and your business location if it’s damaged due to a problem covered by your policy, such as a tornado. Examples of items covered by commercial property insurance include both owned and leased items, such as computers, office furniture, inventory, supplies, valuable papers and business records.
How Much Does Self-Employed Insurance Cost?
The exact cost of self-employed insurance varies based on several factors, including:
- Number of employees. More workers you employ will mean higher workers’ compensation premiums.
- Insurance coverage needs. The coverage types and policy limits you select affect your rates. Generally, higher coverage amounts mean higher premiums.
- Prior claims history. Your insurer reviews your business claims history when setting your rates.
- Other pricing factors. Your business location, the size of your payroll, business assets and business property owned are factors that may affect your self-employed insurance policy premiums.
Example of self-employed insurance cost
Here are examples of how the cost of self-employed insurance can vary depending on your profession. Costs will depend on your type of business, what coverage types you buy and other factors.
Ways to Save on Self-Employed Insurance
Here are some ways you may be able to save on self-employed insurance:
- Go with a BOP. A business owners policy (BOP) is a solid start to any self-employed insurance policy. It includes three essential coverage types (general liability insurance, commercial property insurance and business interruption insurance) and it’s usually cheaper than buying each coverage type separately.
- Pay your premium up front. You may be able to land a small discount if you pay your self-employed insurance annually rather than monthly.
- Implement a safety program. You may be able to save on workers comp insurance if you implement and document a safety program for your employees.
- Classify your workers accurately. Speak with your insurance agent to classify your workers and have a detailed description of their job duties to save on workers’ comp. Don’t have your workers perform tasks outside of their job classification.
- Join an industry or trade association. You may be able to get a group discount on workers’ compensation insurance if you join an industry or trade group.
- Increase your commercial auto insurance deductible. An insurance deductible is the amount deducted from a check if you file an insurance claim. Generally, the higher your deductible, the less you’ll pay in premium. Just make sure you can cover a higher deductible amount if you have a claim.
- Compare business insurance quotes. Costs for self-employed insurance will vary depending on the insurance company. It’s a good idea to get quotes from multiple insurance companies.
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Who Needs Self-Employed Insurance?
The Internal Revenue Service considers someone self-employed if any of the following applies:
- You carry a business or trade as an independent contractor or sole proprietor.
- You’re a member of a partnership that carries on a business or trade.
- You’re in business for yourself, including part-time business.
If this applies to your profession, you’re likely need self-employed insurance. While the term “self-employed” can apply to a wide range of professions, here are some common careers that might fall under the self-employed category:
- Carpenter
- Childcare service
- Consultant
- Delivery service
- Electrical contractor
- Event planner
- Florist
- Food caterer
- Freelance writer and editor
- Graphic designer
- Hairstylist and salon professional
- Handyperson
- Interior designer
- Lawyer
- Painter
- Photographer
- Pet care services like boarding, grooming, training and walking
- Plumber
- Online teaching and tutoring
- Real estate agent and broker
- Roofer
- Therapist
- Web designer
Other Small Business Insurance Types
A BOP is a good start, but it may not be sufficient. You may want to add additional coverage types to tailor your self-employed insurance to meet your profession’s demands. It’s a good idea to speak with your insurance agent so you’re not underinsured.
Here are some common small business insurance types to consider:
Workers’ compensation insurance
Most states require you to have workers’ compensation insurance if you have employees (even if it’s just one employee). This covers lost wages, disability benefits and medical expenses if your employee gets ill or injured while performing job-related tasks.
Commercial auto insurance
You need a commercial auto insurance policy If you use a vehicle to perform job-related tasks. A personal car insurance policy won’t cover business use.
Here are some examples of business use of a vehicle:
- Your vehicle is solely used for work
- You transport goods or people in your vehicle for business purposes
- You conduct a business service in your car
- You haul equipment or tools in your vehicle
- An employee drives your vehicle
- The vehicle is owned by your company
Here are common commercial auto insurance coverage types,
Hired and non-owned auto insurance
If you or your employees use a rented or personal vehicle for work-related purposes, this covers injuries and property damage accidentally caused to others. For example, this would cover the other driver and their passengers’ medical expenses if your employee uses their own car to run a work errand and causes a car accident that results in injuries.
Contractor’s tools and equipment insurance
Certain self-employed professions, like construction, cleaning businesses, contractors and landscapers, rely heavily on tools and equipment. This coverage type pays to repair or replace your tools and equipment if they’re lost, stolen or damaged. For example, if someone steals your air compressor from a job site, this would pay to replace it.
Errors and omissions insurance
Also known as professional liability insurance, errors and omissions insurance (E&O) covers you if you make a mistake in your professional services or if a client accuses you of making a mistake, whether the claim has merit or not. E&O can cover legal defense costs, judgments and settlements.
Errors and omissions insurance is good for self-employed workers who provide a professional service or offer advice to clients. For example, a client might claim your construction project wasn’t properly done or that your professional advice caused financial harm. Here are some examples of professions that would benefit from E&O:
- Accountants
- Contractors
- Consultants
- Graphic designers
- Interior decorators
- Lawyers
- Real estate agents
- Tax preparers
- Technology professionals like software and web developers
Inland marine insurance
This coverage, also called “property in transit,” covers the cost to repair and replace business property while in transit to a work site. For example, if you’re transporting mobile machinery to a job site and it’s damaged while in transit, inland marine insurance covers the cost to repair it.
Equipment breakdown insurance
If your self-employed profession relies on certain types of machinery and equipment to get the job done, this covers the cost of unexpected breakdowns, such as the time and labor to repair and replace your equipment. For example, if you’re a painter and your paint sprayer breaks down, equipment breakdown insurance could pay for repairs.
This coverage type is also called “mechanical breakdown insurance” and “boiler and machinery insurance.” It doesn’t cover normal wear and tear.
Cyber insurance
Cyber insurance covers recovery costs if your business is the victim of a data breach or software attack. Cyber liability insurance can cover expenses like credit monitoring, customer notification, fines and legal fees.
You may want to consider adding cyber liability coverage if your business handles:
- Credit card or bank account information
- Social Security numbers
- Driver’s license numbers
- Medical information
- Customer names, phone numbers, addresses and email addresses
Commercial umbrella insurance
Commercial umbrella insurance is a good option if you want added coverage on top of your general liability insurance. For example, if you have $1 million in business liability insurance but you’re sued for $1.5 million, your commercial umbrella insurance could cover the remaining $500,000.
Surety bond
If you perform contract work, such as construction or electrical work, you may be required to have a surety bond as a means of getting a permit or business license. This covers the cost of claims about incomplete or poor workmanship, as well as fraud and theft. This is the type of bond the term “bonded and insured” refers to.
Examples of Self-Employed Insurance Claims
Here’s a look at a few claims scenarios and the self-employed insurance coverage type that would apply.
What’s Not Covered by Self-Employed Insurance
Even the best self-employed health insurance policy doesn’t cover all problems. Here are some examples of common exclusions:
- Floods (you need a separate commercial flood insurance policy)
- Earthquakes (you need a separate earthquake insurance policy)
- War
- Infectious diseases
- Government seizures
- Radioactive fallouts
- Intentional and fraudulent acts
- Wrongful termination (unless you have employment practices liability insurance)
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Self-Employed Insurance FAQ
Do you need commercial auto insurance if I’m self-employed?
If you use your vehicle for work-related purposes, such as transporting equipment or goods, you need a commercial auto insurance policy. A personal car insurance policy won’t cover business use.
Do you need business insurance if you are self-employed?
Some types of business insurance are required by law, depending on your state. For example, if you have employees, you will likely need to have workers compensation insurance.
But even if you’re the only person at your business, you’ll want some protection from problems like lawsuits, accidents and work interruption. A business owners policy (BOP) is a good foundation for a self-employed insurance policy. It bundles three important coverage types: general liability insurance, business interruption insurance and commercial property insurance.
