If you’re about to take the plunge and start your own consulting firm, the foremost thought in your head is probably finding clients and keeping them happy. While that’s certainly important, you also need to consider the importance of being properly insured. For example, if you’re running the business out of your home and counting on your homeowner’s insurance to cover your business equipment, you might be surprised to find that your policy doesn’t offer adequate coverage—if any at all.
In this article, I’ll provide an overview of the types of insurance you should have, why you need them, and how to find them. For all types of insurance, you should always be sure, of course, that you thoroughly read the policy and any updates.
Insuring your business property
If you work out of your home, your homeowner’s insurance may include your business equipment. But even policies that do provide such coverage usually insure an amount far below what the typical IT consultant has invested in PCs, printers, peripherals, and so on. Find out from your agent what the limit is and whether you can increase that limit—you may be able to increase the covered amount by 100 percent or more at little additional cost.
If your homeowner’s insurance is inadequate, you rent your residence, or if you rent an office separate from your home, you’ll need a different type of policy. Consider these options:
- In-home business policy: These policies insure business property up to just about any amount you like. Be aware, however, that you may need to purchase other types of insurance from the company in order to get an in-home business policy, such as home or automobile insurance.
- Business owner’s package: This type of policy is a good option if you don’t operate out of your home or if you do a lot of your work in locations outside your office. You may be able to obtain higher coverage amounts with this plan than with an in-home business policy.
Both these types of plans may include, or offer as a supplement, insurance against liability, which I’ll discuss next, and loss of income due to damage to your business property.
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Are you at risk? Consider liability insurance
Have you thought about what might happen if a client sued you? Most of your clients probably have deeper pockets and more legal options than you do. Think about the work you do: Is it possible that anything you do or create has the potential to cause injury or harm to someone, whether properly used or not? In your line of work, is it possible that you could defame someone? Do you take on mission-critical projects for clients who might be inclined to get litigious if you can’t deliver, have to end the project early, or miss a deadline?
If any of these questions trouble you, consider liability insurance. You may be able to purchase it as part of your business property insurance, as discussed above, or you can purchase it separately if necessary. General liability insurance will cover you in the following situations:
- Someone is injured at your office.
- Your services don’t fulfill their contractual purpose.
- Your subcontractor fails to perform his or her duties.
- You’re found liable for something you assumed under your contract.
- You accidentally damage a client’s property or injure someone.
- Personal or advertising injury, such as slander or defamation.
- You damage your own office, if leased.
As you can see, general liability covers you in the event of physical damage. However, it won’t usually cover you for damage to intangible property or for loss of business, such as if you get sued for missing a deadline, which then causes a client to lose money. For these types of losses, consider obtaining what’s called errors-and-omissions insurance, or ask if these types of situations are covered in any liability policy you’re considering.
Insuring vehicles used for your business
If you use your private auto for any business travel, make sure that your existing policy covers any accidents that happen while you’re on business. If you do a lot of business travel in your car, you may want to purchase a separate business automobile policy. If you have subcontractors or employees who use your car, a separate policy is especially important.
Don’t forget disability insurance
When you’re self-employed, a serious accident or illness can have repercussions far beyond the immediate health risk. When you are your only source of income, suddenly becoming incapacitated—even for a month or less—can have serious financial implications.
Although it isn’t a necessity, you should consider disability insurance. Depending on your financial reserves, normal expenses, and risk tolerance, choose a policy that will provide adequate income for either a brief (short-term) or an extended (long-term) period of time—or both.
When looking into any policy, make sure that you understand what the policy does and does not cover, as well as how it defines full and partial disability. Also find out what the contingencies are for your line of work. If you’re a software programmer, for example, find out if there’s a limit on your benefits for that line of work after which you’ll have to retrain for another field.
If you have any employees, you probably already know that you must have workers’ compensation insurance. You may not know, however, that if you’re incorporated, workers’ comp may also protect you while you’re on the job; check the guidelines for your area.
Finding an agent
Once you consider your insurance needs, you’ll need to find an agent for these policies. First, contact your current home or auto insurance agent. Even if he or she can’t offer the insurance you need, you might get a recommendation for agents who do provide such coverage. Try to find an agent who works with other self-employed professionals. Agents who are accustomed to working only with large companies might not know how to address your questions and concerns.
You can locate a number of agents in your area at the Web site of the Insurance Information Institute. From the home page, click on the Organizations link, then on the Directory of State Insurance Organizations link to see a map of the United States. Click on your state for a list of agents near you. This site also provides information about what to look for with various types of insurance, including business, accident, and fire.
Although it’s a good idea to compare quotes from several policies, don’t let price alone be the factor that determines the policy you buy. Make sure that the company you choose has a good history of claim payments and that they’ll be around for a while.
Keep good records
Last, make sure that you keep good records of what you’re insuring. For all your equipment, track the item, serial number, and the purchase date and amount. It can also be a good idea to keep photo evidence of each piece of equipment. This information should be kept with your other important papers and, preferably, away from your home or office in case of fire. Such a list makes it easier to file claims, as well as keep track of your assets and prepare your taxes.
Also, update your agent whenever your situation changes to ensure that you’re still adequately protected. You should notify your agent of new equipment or any other changes in your insurance scenario. Reevaluate your insurance needs from time to time. For example, if you move into a different specialty, you may find that you now need liability insurance.
Meredith Little wears many hats as a self-employed technical and travel writer, documentation consultant, trainer, business analyst, and photographer.
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