When you first start out as an IT consultant, money can be pretty tight. You're worried about paying the bills and buying equipment and software to keep your business running. Insurance is probably the last thing on your mind.
If the premiums break the bank, then it's self-defeating. I didn't even have health insurance for my first five years as an independent consultant — it just didn't make financial sense. But once you've got a steady income stream, you don't want to lose it all because of something stupid.
It is possible to have too much insurance. Buying insurance is betting that something bad is going to happen — but bad things do happen, and sometimes it pays to have a safety net.Here are the types of insurance policies that I think independent IT consultants may want to consider. (Disclaimer: I am not an insurance agent, so don't rely solely on my observations. When buying insurance, find an agent you trust.) Errors and omissions: Also known as professional liability coverage, this type of policy protects you from damages resulting from doing something wrong as a consultant. Considering how many mistakes one makes in the course of a technical career, the chances of getting sued for one of them depends a lot on the type of clients you take on. Good policies will cover your liability, as well as the cost of your defense. You have to weigh the probability of ever getting sued against the cost of the features you sign up for: deductible, expiration, definition of what is covered, etc. In the 17 years I've been an independent consultant, I have never taken out one of these policies, but I'm seriously considering it. General liability: This covers damages that aren't specifically due to your failure to do your job correctly. It usually includes injuries and damages that occur on your property or through your negligence, as well as slander, libel, and advertising injury. This is another type of coverage that I don't have, but I'm considering. Health insurance: What a rip-off. If you know how to find an affordable policy, let me know. I've tried using a group policy under my company name, as well as several different individual policies — they always cost too much and cover too little. But, if you have dependents, how can you afford to risk financial ruin due to illness? And for us independent consultants, any sick leave is usually unpaid, so it also threatens our livelihood more than it does for the average employee. Disability insurance: I admit that I don't have disability insurance. As long as I have a brain, eyes, and hands, I can do my job. But what if an illness or accident renders you unable to perform your job? For instance, if a significant part of your business is on-site, you need to be able to get there. And, if you work with hardware, you need the agility to get inside those cases, cabinets, and racks. It's a risk you should consider. Life insurance: It's not going to do much for your business if you're dead, but you should have enough life insurance to cover your final needs and your family's needs resulting from the loss of your income. I carry more than 10 times my annual income in life insurance. Term policies are cheap enough to make that affordable — just make sure you deal with a reputable company. Property insurance: Does your homeowner's policy cover your home office equipment in the event of a disaster? If you don't know, be sure to check with your agent. Also, don't forget about flood insurance if you're in a floodplain.
Additional insurance tips for consultants
- Insurance Tips and Traps for Consultants (Management Consulting News)
- Starting a Consulting Venture? Don't Forget Insurance (TechRepublic)
- Health Insurance Options for the Self-Employed (TechRepublic)
- When Should Consultants Buy Professional Liability Insurance? (TechRepublic)
- Finding and Pricing Professional Liability Insurance (TechRepublic)
Share your take on insurance for independents
What types of insurance policies do you carry? Do you think it's too much, too little, or have you hit the sweet spot (if there is such a thing)? Do you have any advice on what to watch out for when shopping for insurance? Is there anything I failed to mention about insurance for independents?
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Chip Camden has been programming since 1978, and he's still not done. An independent consultant since 1991, Chip specializes in software development tools, languages, and migration to new technology. Besides writing for TechRepublic's IT Consultant blog, he also contributes to [Geeks Are Sexy] Technology News and his two personal blogs, Chip's Quips and Chip's Tips for Developers.