Freelancers and independent business owners have become a significant portion of the workforce, especially in 2020. In a survey of 6,000 workers over the age of 18 conducted by Upwork and the Freelancers Union, they estimated that approximately 57 million Americans freelance. That’s a significant portion of the population! In fact, Gen Z freelances more than any other generation of workers—about 53% of Gen Z workers (ages 18-22) have freelanced. Even more compelling is that the income derived from freelancing work exceeds the GDP of some major industries! With a median earning rate of $28 per hour, freelancers are earning more per hour than 70 percent of workers in the overall U.S. economy.
With that kind of earning power, the freelancing and self-employed community will need to have easy access to the right kind of professional and general liability insurance to protect their work. From yoga instructors to life coaches, hair stylists and nutrition consultants, all freelance businesses need to be protected from the cost of defense in a lawsuit, injury payments, and even things like a data breach. General & professional liability insurance policies are an investment in your future and your financial security. Having the right insurance allows you to continue working and growing your business even when the worst happens.
Liability Insurance Types
Insurance can sometimes be confusing. To help simplify the basics of business liability insurance, we have broken out the top two kinds of business insurance: general liability and professional liability.
1. General liability insurance covers “slip and fall” type accidents. For example, if you have an office space like a salon, customers may trip over a cord or fall off a table as they get up from a treatment. Your general liability insurance would jump in to cover costs resulting from the customer’s accident, including medical bills for injuries or the costs to defend you if the client sues you for negligence. If you travel to clients’ homes (say, for an in-person nutrition consultation) or if you host client meetings at a third-party venue (for example, if you give a presentation at a hotel conference room), you could still be held responsible for injuries or accidents sustained by your client during those business meetings. Make sure your general liability insurance applies everywhere you work.
2. Professional liability on the other hand, covers you for damages that result from the services you provide. Professional liability is also referred to as E&O insurance or malpractice insurance. For example, if you’re an independent hair stylist and a coloring product you use causes burns on your client’s scalp, then that would fall under professional liability coverage. Even if the problem ends up being the coloring product manufacturer’s fault, you probably would have needed a lawyer to help defend your business. The liability insurance would cover those costs and provide you with an attorney – leaving you free to continue working without worrying about the bill!
In reality, for most freelancers, sole proprietors and small business owners, the biggest benefit of having liability insurance will be the defense costs coverage. Defending yourself in court regardless of if you’re at fault can quickly add up to over $10,000. With the right liability insurance, you won’t need to figure out how to pay that bill.
Now that you’re in the market for liability insurance for your work, how do you know what amount of coverage to get? A safe bet that is affordable is to stick within the $1mil/$3mil range. There are two coverage limits to pay attention to: the per occurrence (or per claim) limit and the aggregate limit. The per occurrence limit is pretty self-explanatory, but the aggregate limit is the total amount the insurer will pay for your entire policy period. If your policy is an annual policy, then the aggregate is how much they will pay during any 12-month coverage period. If your policy is a 6-month policy, then the aggregate is the most the insurer will pay for that 6-month period, unless specifically stated otherwise in your policy.
In addition to the basic general & professional liability, you may also want to consider some optional additional coverage depending on your business. Two of the most common these days are sexual abuse liability and cyber liability. Of particular note for remote work is the cyber liability. If you accept client payments over the Internet or if you gather client information via your website or email, then that information is vulnerable to hackers or a data breach.
Cyber liability jumps in when you have a data breach to address branding issues, tracking down the source of the breach, notifying those who are affected and ensuring you meet your state’s requirements (yep, every state has different requirements for data breach cases). Often, this coverage can be included for a small additional premium. For more details on cyber liability, check out this online white paper from Alternative Balance.
How to Choose an Insurance Company
One of the best ways to get general & professional liability insurance as an independent business owner is to go through an association or professional group. For example, the Alternative Balance Professional Group provides liability insurance for its members in the health, beauty and wellness industries. Because they are a group of similar types of businesses, Alternative Balance is able to get a group rate on the insurance, which brings the overall cost down and ensures the stability. When evaluating associations and professional groups, however, be sure to find out if the insurance coverage limits are shared. If they are shared, that means the $3mil aggregate limit applies to everyone in the group. If one group member has a claim that ends up costing $2.5mil, then the rest of the group only has $500k left for their claims. Choose a group that gives you your own liability insurance limits to ensure you’re completely covered.
The insurance company the association uses is also important. If you’re wondering about the reliability of a specific carrier, you can review their A.M. Best rating or Standard & Poor’s rating. These independent agencies are the most trusted for insurance carrier financial stability ratings. Alternative Balance’s insurance policies, for example, are backed by Lloyd’s of London, which has an A.M. Best rating of A with a Stable outlook.
When it comes down to having peace of mind and protecting your investment in yourself, liability insurance is a must-have. Find the right insurance option for you, and thrive in your business!