A Freelancer’s Guide to Insurance

What kind of insurance do you need as a freelancer?
The answer can vary widely, depending on what type of business you’re in, what kind of clients you have, how much equipment you have, your financial situation, where you live, and a range of other factors.
Although I can’t tell you specifically what’s right for you, what I can do is lay out the options available to you, and give some examples of when each type of insurance could be useful.
So that’s exactly what I’m going to do in this tutorial. You’ll learn about different types of insurance, from professional liability insurance to property insurance, health insurance, and even specialized things like tax investigation insurance. By the end of the tutorial, you’ll have a clearer picture of the options available to you and how to choose between them.
But first, a word about risk.
Whenever you go into business, there’s a risk that something could go wrong. There are lots of risks, in fact, from a leaky roof destroying your equipment to a critical tweet getting you sued for libel.
Before you decide what type of insurance you need, the first step is to understand what risks you are exposed to. When you’re buying insurance, after all, what you’re really doing is transferring risk. You pay a premium, and in return the insurance company agrees to take on the risk of the lawsuit, the leaky roof, or whatever that policy covers.
I wrote a whole series about risk management for Tuts+, so check that out if you want to understand more about the topic. The super-condensed version is:
  • Understand all the risks you face.
  • Prioritize them in terms of likelihood and impact.
  • Come up with strategies for managing them.
Insurance is one strategy for managing risk, but it’s not the only one. You may choose to avoid the risk (by not engaging in a particular risky activity, for example), reduce the risk (perhaps by introducing more safeguards or contract clauses to make problems less likely to occur), or accept the risk (if it’s an item with low scores for “likelihood” and “impact”, and you’re OK just living with it).
When you’ve listed all your risks, prioritized them, and come up with strategies for managing them, then you’ll have a much clearer idea of what you need insurance for. Now you just need to understand what types of insurance are out there, and how they work. That’s what we’ll look at next.
There are so many different types of insurance out there, and the terms can be confusing. To make things worse, there are often several different terms for basically the same type of insurance. And to make things even more confusing, they’re often called different things in different countries.
So in this section, I’ll demystify some of the terminology, explaining how each one works and when you might need it.
Note that sometimes the types of policy given in “Also known as” may differ slightly in their details or levels of coverage. For example, a public liability insurance policy in the U.S. may protect you against lawsuits from the public, but not from vendors or investors—a general liability insurance policy often provides broader coverage. But I group them together because they cover essentially the same type of risk.
Indemnity insurance, errors and omissions insurance.
Essentially, this type of insurance covers your mistakes. More specifically, it covers you against the expensive consequences of your mistakes, and potential lawsuits from angry clients. If you provide incomplete or shoddy work, fail to meet your contractual obligations, or provide a negligent service, you may get sued. This policy covers you up to a certain amount; as usual with insurance, the more coverage you get, the higher your premiums.
All freelancers should at least consider this type of insurance. Even if you only work with small clients and there doesn’t appear to be much money at stake, things can go wrong.
If you’re a wedding photographer or videographer, for example, you may get sued by an angry couple if they’re not happy with the results. If you’re coding or designing a website, you could be liable if the site doesn’t work as advertised and the client loses money as a result.
If you’re a designer, you could get sued if you use an image that’s subject to copyright. Remember that “HOPE” poster that became an unofficial symbol of Barack Obama’s campaign in his first run for the U.S. Presidency in 2008? It was also the subject of a compensation claim from the Associated Press.
Business liability insurance, commercial liability insurance, public liability insurance, or various combinations of the same words (e.g. commercial general liability insurance)!
This covers things like an injury or property damage to someone else—it’s sometimes called “slip and fall” insurance.
This is particularly important if you have a lot of face-to-face contact with people, or have a lot of equipment or a commercial property.
For example, if you’re a photographer, and your light stand topples over and hits your portrait subject on the head, you’ve got a problem. If you’re a web designer and frequently invite clients over to your studio to work on a project, you could be liable if one of them gets injured on your premises.
Some general liability policies also protect against things like libel claims, so it’s also worth checking into it even if the above scenarios don’t apply. And some large clients may require you to have it.
This is a broad category covering damage to your business equipment. You may already have homeowners insurance, renters insurance, contents insurance or other policies that cover your stuff, but be careful: sometimes personal insurance policies don’t cover equipment used for business activities. Depending on your policy, you may need to at least let your insurance company know, or perhaps take out an entirely new policy for equipment you use for business.
As freelancers, we all have some equipment, even if it’s just a laptop and a phone. Think about what you’d do if that equipment got damaged or destroyed, and how you’d manage the risk. Of course, the more you rely on expensive equipment, the more worthwhile an insurance policy will be.
This is the same vehicle insurance that you’re used to from your personal life. At the most basic level, it covers you for damage you cause to other people or property while driving. Comprehensive policies also cover things like fire and theft.
As with property insurance, you need to check whether you are covered by your existing policy if you use the vehicle a lot for business. You need to inform your insurance company, and may need to pay an additional premium or take out a specific business policy. Don’t assume you’re covered by your personal auto insurance.
I’m sure you know this one already. If you get sick, the insurance pays for private medical care.
Unless you live in a country with a comprehensive state healthcare system, this one is a must for freelancers. Company employees often get it as a benefit of employment, but freelancers don’t, so this is a major expense. It can be expensive, but it should definitely be a high priority for you to take out as soon as you can afford it. Otherwise, a single stroke of bad luck can put you out of business. Medical expenses are the number one cause of personal bankruptcy in the U.S.
Income protection insurance
Health insurance may cover your medical expenses, but what if you’re left unable to work for a long period of time? Your income will dry up, and you’ll be in serious financial trouble. Disability insurance provides you with some regular payments if you’re unable to work because of injury, illness or other incapacity.
Honestly, this one is impossible to predict. Even if you’re young and healthy and not engaged in particularly risky work, the worst could still happen. So it’s worth at least considering this type of insurance. Also consider how fragile or secure your general financial position is, and how you’d cope if your income dried up. For more information on this, see my recent tutorial on dealing with illness as a freelancer.
Workers’ compensation
If you employ other people in your business, this form of insurance provides coverage for any injuries they may suffer, giving them medical care and compensation for lost income while they’re unable to work.
If you’re a solo operator, of course, this one doesn’t apply to you. But if you start to expand and take on employees, it’s important to ensure they’re protected. In many jurisdictions, it’s a legal requirement, so be sure you know the rules where you live.
Tax protection insurance
Tax can be a complicated area for freelancers. We have to declare income from a range of different sources, add up our expenses accurately, claim the right deductions in the right areas, and lots more. If you get audited or investigated by the tax authorities, it can be a painful and sometimes expensive process. Tax investigation insurance offers protection against the costs of dealing with a tax inspection.
Anyone can get investigated, of course, but consider how complicated your affairs are. If your situation is simple and you keep good records, an investigation may be relatively painless, and this insurance may not be necessary for you. But the larger and more complicated your business and financial affairs become, the more costly it could be to deal with an audit. If you’d have to pay an accountant lots of money to help you sort the mess out, it’s probably worth considering insurance.
So now you understand some of the main types of insurance available to you as a freelancer, and you’ve seen some situations in which you might need each kind.
The next step is to get clear on your risks, if you haven’t already. Understand clearly what risks you’re exposed to, and then you can decide whether insurance is the right option for managing some or all of those risks.
Then shop around for the right insurance product for you. In some countries, there are particular policies aimed at freelancers, or brokers that specialize in helping freelancers. In other cases, you may have to go with something aimed more at small businesses.
It’s well worth checking professional associations to see if they offer any insurance benefits. Often they are in a position to negotiate favourable rates for their members. For example, as a British freelance writer, I am a member of the Society of Authors (which costs £95 a year), and so I qualify for their special insurance offers for members. I can get tax protection insurance for just £12 a year, public liability insurance for £16 a year, and discounts on lots of other types of insurance. Bargain! See what’s available in your country and your industry.
If you find that the premiums are too high, even after you’ve compared several different providers and checked professional associations, then return to the risk management series, and consider if there’s any other way you can deal with the risk effectively. Insurance, after all, is not the only risk management strategy. But you do need to have some strategy in place. Reduce the risk, avoid it, accept it, or transfer it. Just please don’t ignore it.
Graphic Credit: Insured icon designed by CO. Department of Health Care Policy and Financing from the Noun Project.


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