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.
What Are Your Risks?
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.
Types of Insurance for Freelancers
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.
Professional Liability Insurance
Also Known As
Indemnity insurance, errors and omissions insurance.
What
it Covers
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.
When You Might Need It
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.
General Liability Insurance
Also Known As
Business liability insurance, commercial
liability insurance, public liability insurance, or various combinations of the
same words (e.g. commercial general liability insurance)!
What it Covers
This covers things like an injury or
property damage to someone else—it’s sometimes called “slip and fall”
insurance.
When You Might Need It
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.
Property Insurance
What it Covers
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.
When You Might Need It
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.
Auto Insurance
What it Covers
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.
When You Might Need It
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.
Health Insurance
What it Covers
I’m sure you know this one already. If
you get sick, the insurance pays for private medical care.
When You Might Need It
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.
Disability Insurance
Also Known As
Income protection insurance
What it Covers
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.
When You Might Need It
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.
Employers’ Liability Insurance
Also Known As
Workers’ compensation
What it Covers
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.
When You Might Need It
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 Investigation Insurance
Also Known As
Tax protection insurance
What it Covers
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.
When You Might Need It
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.
Next Steps
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.
Resources
Graphic Credit: Insured icon designed by CO. Department of Health Care Policy and Financing from the Noun Project.