How does professional liability insurance work for independent contractors and self-employed?
Independent contractors and sole proprietors can be held responsible for oversights and errors that harm their clients financially. If a client files a lawsuit, professional liability insurance covers your legal expenses, including a settlement or judgment.
Professional liability insurance can help businesses and independent contract workers protect themselves from the risks associated with a growing freelance work environment.
Since the Great Recession bludgeoned the economy in 2008, companies have been reluctant to hire full-time employees, according to The Philadelphia Inquirer. As a result, many job seekers have taken to independent contracting work as a way to maintain at least some level of employment while they wait for businesses to start hiring again on a full-time basis.
Independent contracting work has several benefits on both ends of the spectrum. For example, freelance workers and contractors such as architects, graphic designers, and various industry consultants enjoy a certain level of flexibility in their schedules as opposed to people with full-time, 9-to-5 hours during the week. Meanwhile, employers benefit from the ability to hire workers with specialized skills for short periods. As a result, businesses complete essential tasks while saving the money otherwise used to employ someone full-time.
However, short-term freelance work has risks. As in any business situation, things can go wrong. For example, contractors can practice negligence that ends up costing a business large sums of money in damages. That’s why both businesses and independent contractors can benefit from the right professional liability insurance policy.
Before seeking out the best plan, it’s important for independent contractors to keep a few essential points in mind:
Are you liable?
Many contractors may not recognize the extent of their liability. Errors and omissions insurance is especially important in protecting freelance workers from surprise claims. For example, construction workers don’t often understand their work can fall under the same “professional services” category associated with liability insurance. According to the Daily Journal of Commerce, the line between the two types of work isn’t always clear. Many contractors in the construction industry are responsible for project design as well as actual building. Additionally, all of the due diligence surrounding the planning of a construction project can also be considered “professional services” and therefore eligible for liability claims. Contractors must properly categorize their services before jumping into an insurance plan.
Are you proactive enough?
Insurance contracts are finite agreements that are subject to change. Similarly, freelance work can be unpredictable. Contractors need to be prompt in notifying their insurance providers of any claims they receive, according to Idaho Business Review. It’s also important for independent workers to make sure their policies are up to date. If an insurance plan expires before a contractor receives a claim, the plan may not be able to cover the damages – even if the supposed negligence occurred during the policy period.
