Guest post: What’s the deal with business liability insurance?

May 10th, 2008

The Boss of YouLauren and Emira, authors of The Boss of You (which is getting rave reviews, by the way), are back with another guest post. A couple weeks ago, I was struggling with the question of business liability insurance — what I needed for myself as a company of one, and what to say about it in my new book. I asked them for their thoughts on the matter, and the result is this post. If you have any questions about small business liability insurance, feel free to post ‘em in the comments. I’m sure Lauren and Emira would be happy to answer.

For the first few years of our business life, we weren’t that concerned with liability insurance. While it would have been nice to take a “better safe than sorry” route, we didn’t really relish the thought of putting our meager earnings into insurance. At the time were a small company, without any staff, and our contracts state that we have no responsibility for our clients’ data and that our liability doesn’t exceed the value of any individual contract.

It was actually when we moved into our office space that liability insurance came up — our building required that we carry a minimum amount, as well as Errors & Omissions (E&O) insurance. Shortly after that we also hired staff, and while we certainly trusted our staff implicitly, things began to get a little more removed from our control, while ultimately if anything went wrong we’d be the ones holding the bag. At that point in time, we were really happy that we already had liability insurance in place.

Over the last couple of years, we’ve encountered a new situation with liability insurance that we hadn’t really considered when we first started out: we’ve been working with larger clients (particularly with government organizations) that actually require us to have liability insurance in order to be a successful bidder on any contracts.

We didn’t start our business with a vision of working with these kinds of larger organizations, but we know some people go into freelancing with the plan to work primarily with bigger organizations — often they actually come from having worked for a larger organization and move from a paid staff position to consulting after some time away, a maternity leave, etc. The point is, if you think you’re going to work with these kinds of larger institutions or organizations, you definitely don’t want to be trying to figure out your insurance while you’re replying to a 20+ page Request for Proposal. So, if that describes your target client, we’d strongly recommend getting some insurance in place from the get-go.

When working with larger organizations that are likely to require that you to carry liability and E&O insurance, you should work that into your pricing. With additional overhead expenses like that, you will need to charge more, simply because your cost of doing business (as required by clients) is significantly higher. So make sure you feel very comfortable charging enough to cover those expenses.

In our case, we actually went from working with an organization that didn’t require business liability insurance to that organization changing their policy (requiring us to carry insurance). And after that change, when we submitted our next quote for work at a higher rate than we had charged in the past, we made sure to gently remind the client that our rates were going up to reflect the additional costs they required we incur.

When you’re seeking out quotes on liability and E&O insurance, be warned that many insurance providers don’t really understand how to sell this kind of insurance to smaller outfits. They often have predetermined categories that are actually for bigger businesses. So it’s worth pushing back on your initial quote and making sure they really understand what it is you do, and what your actual level of risk is so you’re not paying the same amount as a firm with hundreds of employees that can technically be slotted in your category.

This is especially true for freelancers. When we first started looking for liability and E&O insurance, the carriers wanted to slot us in like we were a hosting company (we’re a web site design company), which is a whole other kettle of fish (hosting companies are explicitly responsible for their customers’ data for example, where our contracts state we are not). So we had to make the carriers understand what it is we actually do in a day, and what the real risks we carry are. And the price difference was significant.

Another piece of advice we always give on pricing and insurance is to try to renegotiate your policy annually, especially after you’ve held it for a year or two. We have a great insurance agent and she prompted me on this one initially, by basically saying, “You know I can probably get you more coverage for this premium since you’ve had no claims/are in good standing” — and she did. Now typically they don’t want to actually lower your premiums, because of course that’s how they’re getting paid too, but they will go to bat for you on getting you more for your money and that’s better than nothing.

Entry Filed under: She's the boss,This freelance life

1 Comment Add your own

  • 1. The Anti 9-to-5 Guide &ra&hellip  |  July 11th, 2010 at 12:09 pm

    [...] freelancers on the job means more room for mistakes. If you don’t have business liability insurance, it may be time to look into [...]

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Who I am

Hi, my name's Michelle Goodman and I've been freelancing since 1992. I'm author of My So-Called Freelance Life and The Anti 9-to-5 Guide. Read my full bio here.

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