As a freelancer, you will be on your own when it comes to finding and paying for insurance…and that’s just to cover you, personally: health, auto, and home. But what about your business? As it turns out, you need insurance to cover business-related risks as well. Today I’ll talk about some of these policies and why you might need them.
Why Am I Insuring My Business?
As with your health, your home, or your automobile, you pay for business insurance as a bet against the likelihood that something bad will happen to you: your computer being lost, damaged, or stolen; your office burning down; or you or an employee getting sued. Business insurance, as it turns out, comes in a few different flavors–at least in the U.S.–to capture one or more of these situations.
General Liability/Umbrella Coverage
These types of policies cover general types of liability, from legal matters to property damage to a customer becoming injured tripping over a coffee spill in your office space. For premiums ranging from $500-$8,000 a year, you can obtain coverage ranging from $4 million to $10 million per incident.
Commercial Vehicle Coverage
While you might have personal coverage on your car, if you owned a commercial vehicle used strictly for business, or for times when you are in fact driving for work, clients might require you to carry commercial vehicle coverage. This sort of coverage won’t just cover the typical property or vehicle damage or medical expenses but potentially legal expenses related to an accident. This type of coverage–which is cheaper to purchase through a business insurance carrier rather than your private automobile carrier–can cost you an additional $150 a year for a $1 million policy.
My tax accountant told me about this one. It’s insurance against that most 21st century of risks: cyber-crime. This type of policy covers data thefts due to hacking, phishing, spoofing, and other cyberspace-related crimes. A reasonable policy can run around $250 a year.
Workers Compensation, Employee Health Insurance, and Medicare
Workers compensation insurance covers injuries employees incur on the job. If you’re a one-person operation, paying this sort of insurance is a bit silly since you’d be paying it back to yourself. Nevertheless, external clients might require this sort of coverage anyhos, no exceptions. This sort of policy, combined with a general-purpose liability policy (less comprehensive than the one described above), could run you $2,500 a year. Don’t say I didn’t warn you.
Additionally, if you have employees, there are laws in this country that require you to pay some or all of the costs of their health insurance. This will require you potentially joining a health insurance group or pool, something that is much easier to do if you’re an incorporated business than a sole proprietor.
Lastly, the U.S. requires employers to pay half of an individual employee’s Medicare (FICA) payroll tax. As a sole proprietor/army of one, you have to pay all of that coverage on your own.
While theft by outside actors (burglary) is usually covered by a general liability policy, specific theft insurance covers theft by one of your employees. It’s a little vague how this sort of policy would work if you are a one-person operation (would you insure yourself against stealing from yourself?), but don’t be surprised if it comes up as a requirement from an external customer–especially a large organization.
If you are operating a business and supporting another business with a lot of proprietary information and intellectual property to protect–some of which you might help write–you can expect to pay for some sort of insurance to cover your business. And really, as you get more advanced in your freelancing–to the point of setting up an actual limited liability company (LLC)–it will become a requirement anyhow. If you’re a one-person show, you’ll need to have some basic business coverage, the cost of which you’ll need to factor into your hourly rate, and if you end up hiring employees of your own, you’ll need to cover some of the other items described above. Going into business isn’t cheap, but you can save yourself a few burdens by making sure you’re insured when big problems arise.