It may seem like you don’t need liability insurance as an independent contractor, or a 1099 worker—especially if you do regular work for other companies. However, the truth is, you still risk financial exposure from claims or accidents. Having liability insurance is an inexpensive way to protect yourself and your business from high out-of-pocket expenses while demonstrating to prospective clients that you take your work seriously.
Generally speaking, even though it isn’t necessarily required by a state government, independent contractors need liability insurance. Diving deeper, the answer becomes a little more nuanced, as there are multiple reasons as to why independent contractors need liability insurance.
1. Offers Financial Security
Regardless of the size or structure of your business, purchasing liability insurance should be one of the first decisions you consider. The reason is that the cost of a claim, even something as unintentional as a customer slipping and falling on the premise of your job site, can be very costly.
According to the Centers for Disease Control and Prevention, slip-and-fall accidents can cost nearly $40,000. This figure is representative of the medical bills and exclusive of any potential litigation, which can cost thousands more. As an independent contractor, the cost of one simple claim can quickly outpace any reserves your business has on hand.
2. Increases Profitability
It might seem counterintuitive to spend money on insurance to make money, but it can work out to your advantage in a couple of ways. Here are a couple of scenarios:
- Clients: Say you are an independent contractor who works in tree service. While giving a customer an estimate, they ask if you are insured; if your answer is “no,” there is a good chance that answer will let them know your business may not be a safe bet. What guarantee do they have if you damage their property while working on a tree you will pay for the damage out of pocket?
- Other businesses: Independent contractors often work under a general contractor on construction projects. A common practice in this scenario is for the general contractor or the project owner to request to see proof of insurance, or a certificate of insurance (COI). If you are uninsured, then this will make it impossible to get the job. If your COI shows you got insurance the day the request was made, it may convey to the project owner that your business isn’t prepared, and that can hurt the chances of getting the contract.
- Government contracts: Independent contractors might be ineligible for government or large company contracts. Municipal entities usually require anyone they contract with to have at least $1 million in liability coverage. Without it, you won’t even be considered.
When Do Independent Contractors Need Liability Insurance?
Independent contractors need liability insurance when bidding on a project and often when working for another company. This is especially true for those working in the construction industry. This would include:
- Electricians
- Plumbers
- Painters
- Handypersons
- Landscapers
However, contractors are more than those working in the construction industry. A freelancer, personal trainer, photographer, and financial advisor are all examples of professions where a contractor needs to consider liability insurance.
Types of Liability Insurance for Independent Contractors
When considering what kind of liability insurance an independent contractor needs, there are primarily two choices. The most common liability insurance products are:
- General liability insurance covers third-party claims of injury and property damage. This is often referred to as slip-and-fall coverage but extends to other types of incidents, such as accidentally damaging someone’s property. For more information, read our guide on general liability insurance.
- Professional liability insurance covers claims that state that the independent contractor did not provide professional services or advice, such as a fitness trainer teaching a client the wrong form that leads to a back injury.
In addition to general liability insurance, many licensing boards and municipalities will require you to carry a surety bond to either be licensed or bid on a project.
If product liability is excluded from your general liability policy, then you may also seek product liability insurance, depending on the type of business you have. This will help pay claims arising from injuries or illnesses resulting from using products you make or sell.
Also, if you keep client property in your possession, then check out garage liability insurance. This covers injuries and property damage to third parties that are caused by your business operations, say when an independent computer repair technician accidentally drops a client’s laptop and breaks it.
Independent Contractors Insurance vs Contractors Insurance
When purchasing insurance, I understand how confusing it can be when trying to discern the difference between independent contractors insurance and contractors insurance. The confusion could be one reason many independent contractors don’t think that they need insurance.
In some ways, the insurance is similar—if not the same. Contractors insurance refers to the series of policies designed to protect those in the construction industry, such as general contractors, electricians, and carpenters.
Many of the same types of policies apply to independent contractors, and it is essential for the independent contractor to understand how important it is that they are insured. They should not assume there is no risk to their business since they work as an independent contractor.
It is very important to ensure you are getting a policy underwritten for your profession. An independent contractor who works as a bookkeeper has different risks from an electrician helping to wire a commercial building.
How Much Does Liability Insurance Cost for Independent Contractors?
Most insurers offer an average on the cost of insurance, and for some independent contractors, general liability can be purchased for as little as $15 a month. Depending on your industry, professional liability insurance policies range from $50 to $138 or more monthly.
The factors that affect your price include your industry, revenue, coverage amount, and claims history—so providing as many details as possible about your business practices and location will help the insurance company appropriately underwrite the policy. The best way to mitigate growing insurance costs is by keeping claims down.
Insurance doesn’t need to break the bank for your business. If you’re looking to find quality yet affordable insurance, check out our guides:
How Independent Contractors Get Liability Insurance
If you understand why independent contractors need liability insurance and are ready to purchase a policy, there are several options:
- You can purchase insurance through a broker, an agent, or an insurance company (carrier); see our comparison of insurance broker vs carrier for guidance choosing between the two options.
- You can be added as an additional insured to another policy. This might happen if a coder works for an IT company on a major project and the coder wants to be protected by the IT company’s insurance. It is very important to remember that this way of getting coverage only protects you for the work you do for that one client. If you are currently working for any other companies, you are uninsured for that work—unless you are an additional insured with them or you have a policy.
Before buying insurance, it is worth looking around and comparing quotes because insurers will use different ways to calculate risk. Given, rates for the same type of insurance will vary.
Frequently Asked Questions (FAQs)
A general contractor policy will only cover an independent contractor if they are listed as an additional insured. Otherwise, there is no blanket guarantee the independent contractor is covered.
According to Statista, in 2022, there were 31.9 million independent contractors.
This depends on the state and industry. Since independent contractors are 1099 workers, not W-2 employees, employers are often not required to offer them workers’ comp. However, in some states, it is still a requirement depending on the industry. For example, while Texas doesn’t have a statewide requirement for workers’ comp, construction contractors working for public entities in Texas must have workers’ comp.
While there are several differences between a 1099 vs W-2 worker, one is that the W-2 worker is automatically included in the business policy. A 1099 contractor, on the other hand, could need to be specifically added. So if you are a 1099 worker, find out if the company you work for has you listed on the policy—and if not, then you should look into getting liability insurance.
Bottom Line
Independent contractors are at risk of having their hard-earned careers bankrupted with even a small claim that could be tens of thousands of dollars. Getting liability insurance is the most cost-effective way to protect yourself from this. As a bonus, having insurance makes you more attractive to bigger clients and provides an overall sense of professionalism on your part which can earn you more money.
A great way to find affordable insurance by comparing prices from different carriers is through a broker. Simply Business is a digital broker that can work with independent contractors in a large variety of industries, offering general liability and professional liability insurance. Online, you can compare quotes and purchase a policy in just minutes.
