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Self employed consultants may assume erroneously that their homeowners insurance will protect them for their business activities. While some homeowner’s policies will provide limited insurance coverage for business property such as computers or product samples, most provide no coverage for liability. Even an endorsed homeowner’s policy rarely covers liability away from home.
Often the first time a self employed consultant looks for insurance is when a client demands it as a condition of an engagement. This insurance usually consists of general liability insurance and may include workers compensation, professional liability and automobile insurance. The greatest exposure for consultants can be professional liability insurance, also known as errors and omissions insurance. See our whiteboard video on that topic here. Not surprisingly, this is the more complicated and more expensive part of a self-employed consultant's insurance program. Allow time for preparing information to go to the market, shopping, and then executing this insurance.
Fulfilling the requirements of an engagement is usually not terribly expensive. A commercial general liability policy with a small amount of property coverage for home office equipment usually runs between $400 and $750. Worker's Compensation generally runs in a range between 300 and $500, assuming no employees. Engagements with larger corporations often will also require excess liability for an additional $2,000,000 to $5,000,000 or more. This additional protection can cost between $500 and $5,000 depending upon your business type, your revenues, and of course the amount requested.
Ultimately, businesses require their vendors to carry insurance for cost shifting and risk transfer. Cost shifting occurs most directly with workers compensation: consultants engaged by a business may increase the cost of the client’s workers compensation, as uninsured contractors are usually treated as employees on audit. Risk transfer is common with general liability and auto insurance; if the consultant causes damage or harm, the consultant may be responsible and the client makes sure the consultant has insurance to take care of these unexpected issues. Risk transfer is better when the vendor or consultant is required to name the client as an Additional Insured.
As a rule of thumb most sole proprietor consultants can get a basic foundation of commercial insurance for about $1,000 per year. Adding professional liability or excess liability will increase this cost by another $1,000 to $2,500 depending on the kind of consulting performed.
In an effort to reduce the cost of risk to all our business customers Gordon Atlantic Insurance recommends that the limits be negotiated up front. Requiring a consultant with $200,000 - $300,000 of revenue to carry $3,000,000 or $5,000,000 worth of liability insurance may not be appropriate, so an honest discussion about kinds and amounts of insurance is healthy. Excessively high limits may be difficult to obtain from any insurance carrier, too.
Always work with a competent broker with access to multiple insurance companies. We have several companies hungry for this kind of business so we can offer good options at the lowest possible cost.
If you have insurance questions or are in need of advice, do not hesitate to contact us here at Gordon Atlantic Insurance.
