In recent years, quite a number of people have decided to dump the 9 to 5 to chart their own financial courses. According to statistics, the number of people embracing self-employment is on the steady rise.

A lot of factors can be blamed for this rise including, lack of jobs, a greater desire for freedom and flexibility, and even pride. But the fact remains that more and more people are getting self-employed. But riding this wave also comes with its own risks, and you can easily get wiped off by one substantial claim. That is why insurance is very important for self-employed contractors.

In this article, we will seek to find out the best insurance policies for self employed contractors and how much these policies typically cost.

What are the Best Insurance for Self Employed Contractors and How Much They Cost

Self-employed business insurance was set up to protect a business in the event the business should run into problems. These policies can protect against damage to business premises, property, and it can equally help when you are sued by a client or even when you lose a key member of your team.

These are some of the insurance policies you will need of you are a self-employed contactor.

  1. Personal Accident and Illness insurance

Personal Accident and Illness insurance provides coverage for your business if you are unable to work as a result of an injury or illness. The cover is generally available regardless of whether or not you sustain an injury or develop an illness due to your work.

When you are working for yourself, your health and wellbeing are vital. If you were to have an accident or fall ill, the impact on your business and personal financial situation could be disastrous. Some self employed contractors tend to think that this insurance is not for the, but before you say that, consider these scenarios.

  • Self-employed workers are typically not covered by Workers Compensation, leaving you vulnerable if you were unable to work due to a work related accident or illness.
  • Flexible options are available with Personal Accident and Illness insurance, so you can select the limit and waiting period to suit your unique situation.
  • Personal Accident and Illness insurance will typically provide cover for accidents that occur outside of your work. For example, injuring yourself while doing some DIY around the house or playing a game of backyard footy with the kids on the weekend.
  • If you were temporarily unable to work due to the accident or illness, your cover could pay you a benefit of up to 85% of your salary.

Things included in this coverage include;

  • Loss of income as a result an injury
  • Loss of income as a result of an illness
  • Loss of income as a result of injury or illness (combined)

Optional Extensions can include:

  • Death benefits
  • Disablement benefits
  • Business expenses

What is typically not covered?

An injury or illness that is the result of:

  • Pre-existing conditions
  • Pregnancy and childbirth
  • An act which is intentional, criminal or caused by you
  • Alcohol or drugs
  • Professional sports
  • Motor sports

How much does personal accident insurance cost?

The cost of this policy can vary greatly depending on how much coverage you have. Rates range from $5 a month for standalone accident insurance without coverage for illnesses to $150 a month or more for comprehensive plans.

  1. Liability insurance

Liability insurance is really just several different types of insurance policies that protect your business from loss based on your premises and operations, products, and completed operations, along with various types of property. When things are going great, being self-employed is awesome. But if something goes wrong, it will land on you, and only you.

As a self-employed business owner, a lot of things probably come naturally to you. Maybe you’re good with numbers, or you’re super organized. You might have an impeccable sense of style, or you can nail things down to the tiniest detail. But if you lose some of your capabilities for one reason or the other, you need to have some sort of backup in the form of insurance.

Liability insurance comes in other forms and they include;

a. General liability

General liability is like a basic insurance coverage for all the random things that could go wrong when you interact with the public. Whether it’s a client who slips and falls at your office, or one of your contractors who accidentally floods a client’s basement, general liability insurance will have your back when something happens. And let’s face it, something always does.

Examples of general liability insurance coverage include:

  • Product liability
  • Slip and fall accidents
  • Property damage lawsuits
  • Customer injury lawsuits
  • Advertising injuries
  • Copyright infringement
  • Reputational harm

Whether it’s a client who slips and falls at your office, or one of your contractors who accidentally floods a client’s basement, general liability insurance will have your back when something happens.

b. Cyber Liability insurance

Cyber Liability insurance is designed to help protect you from claims and support your profitability in the event of a cyber breach or attack. Costs associated with defending a cyber claim are also covered in this insurance.

When it comes to cybercrime, everyone is considered fair game. Whether you’re a doctor with online patient files or run a market stall with an EFTPOS machine, hackers can find opportunities to infiltrate the systems of most professions and occupations.

Examples of the types of risks Cyber Liability insurance can assist with are inadvertent loss or release of customer personal information, cyber crime, cyber extortion/ransomware and business interruption due to a cyber event.

Things included in this policy;

  • Business interruption costs
  • Investigation and data recovery costs
  • Fines and penalties
  • Extortion costs
  • PR and crisis management costs

Things typically not covered

  • Replacement equipment
  • Property damage
  • Prior known facts / circumstances (before the policy commenced)
  • Intentional acts

c. Public Liability insurance

Typically one of the well-known insurances in the trades industry, Public Liability insurance is one of the main types of insurances to consider when protecting your self employed contractors’ business.

It is designed to provide protection for you and your business if a customer, supplier or a member of the public brings a claim against you after they are injured or sustain property damage as a result of your negligent business activities. It will cover legal fees and compensation costs associated with that claim.

Public Liability insurance is a common type of business insurance that different kinds of businesses take out as protection. Operating as an uninsured self employed contractor is a risky move, especially if you take the time to understand the associated costs involved with a claim.

If you accidentally caused property damage or injury to a third-party through your negligent business activities, the legal and compensation costs if awarded could cause financial devastation for your business as you would be held personally financially liable. This could put your personal assets, like your home and belongings, at risk if a claim against you succeeds and you do not have other means to pay the award amount. Having Public Liability insurance in place means you can access assistance with a claim, providing support throughout the whole process.

The first steps will involve your insurer investigating the claim made against you to help determine what you may or may not be responsible for. Your Public Liability insurance covers your reasonable legal costs, even if you are not found negligent.

What does Public Liability Insurance typically cover?

Compensation for:

  • Personal injury suffered by a third party (e.g. a customer, supplier or member of the public)
  • Damage to property owned by a third party due to your negligent business activities
  • Legal and defence costs associated with a covered claim

What is not typically covered?

  • Injuries to your employees
  • Damage to your own property
  • Costs of rectifying faulty workmanship
  • Professional negligence
  • Contractual liability
  • Events occurring before or after the policy period

d. Professional liability insurance (E&O)

Professional liability insurance (aka errors and omissions insurance or E&O insurance) is insurance that protects you in the event that a client claims your business was negligent, made a mistake, or failed to deliver a promised service. In other words, it’s protection against an unsatisfied client.

If you get paid for providing services or expert advice to clients, E&O insurance is probably something you’ll need. If something goes wrong on one of your projects, it could quickly result in a lawsuit against your business. Even if you’re technically not at fault.

e. Business property insurance

Business property insurance (also known as commercial property insurance) protects business property (such as a building or its contents) from losses, such as fire, theft, vandalism, and natural disasters.

It may also cover loss of income in the event that these items get damaged and prohibit you from working at full capacity. Property insurance is important if you own or lease an office space or building, and even if you work from home.

Most small businesses can’t afford to replace damaged equipment at the drop of a hat. If something gets stolen or damaged, it could prohibit you from running your business. If you have assets that your business relies on to run smoothly, you should protect them.

f. Business auto insurance

Business auto insurance (aka commercial auto insurance) is a form of liability insurance that covers cars, trucks, and other kinds of service vehicles owned by your business. If your business owns vehicles, you’ll need business auto insurance.

Commercial auto insurance protects your business from financial losses involving the vehicles listed on your policy, such as damages resulting from an accident caused by one of your employees. You can pick and choose different types of coverage for different vehicles, depending on your needs.

If you use your personal car for business purposes, such as visiting clients and running errands, you’ll need this coverage because personal auto insurance policies typically don’t cover work-related accidents.

How much does liability insurance cost for the self-employed contractor?

The cost of business insurance can vary depending on the size of your business, where you work (like at home versus an office space), and what type of risks you face.
Many people can expect pay between $500 to $1,000 per year for a liability insurance policy, though the size of your policy limits (which is the maximum amount an insurance company will pay for a loss) can majorly impact the price. For example, if you have a coverage limit of $500,000, your policy will be cheaper compared with a policy with $2 million worth of coverage. The higher your coverage limits, the more expensive the policy will be.

  1. Self-Employed Health Insurance

There are a couple things you need to know about health insurance if you’re self-employed.

First, you absolutely need health insurance. It’s not an option. You’ll face a government penalty if you don’t have health insurance. But more importantly, you’re putting yourself and your family at great risk if or when a medical emergency hits.

And second, if you’re used to getting your health insurance through your workplace, brace yourself for some sticker shock. You won’t share the costs of health insurance with an employer anymore, so you’ll be paying for it all yourself

There’s a tax deduction on health insurance premiums for self-employed professionals, which can help soften the blow by lowering how much you owe in taxes. Working with a tax pro can help you find out what kind of tax break you can get and how to take advantage of those savings.

How much does self employed health insurance cost?

Naturally, your own individual health insurance premiums will depend upon several factors. For instance, do you just need single coverage, insurance for both you and your spouse, or a family plan for both adults and children? Insurers also consider age and tobacco use, your ZIP code, and the kind of individual health insurance that you choose.

In all, the cost is thus;

Average premium for single coverage without Obamacare subsidies: $393

Average premium for families without Obamacare subsidies: $1,021

Average plan deductibles: $4,328 for individuals and $8,352 for families

  1. Term Life Insurance

If your spouse and kids rely on you and the income you make from your business, they need to know they’re covered financially if you die unexpectedly. It’s not fun to think about, but you don’t want your family to wonder how they’ll put food on the table or keep the lights on after your funeral. That’s what the stakes are, and this is where life insurance comes in.

Life insurance replaces your income when you die. But not all life insurance is created equal. Term life insurance provides life insurance coverage for a specific amount of time and if you die during that term, your family will receive a payout from the insurance policy. It’s much less expensive and by far a better value than whole life and other types of cash value insurance.

How much does Term Life Insurance cost?

Life insurance companies mostly base their rates on your age and health status, but they also factor in your job, your weight, whether you smoke and even your family health history. The average 20-year term life insurance policy can cost more than $126 a month.

  1. Business Insurance

If you are a self employed contractor, there’s always risk involved with your job. Some people are more likely to get injured on the job while others might be at risk to get a lawsuit slapped on them.

Being self-employed means you need some kind of business insurance to cover the risks associated with your job. Here are four main types of business insurance you should look into:

a. Business Owner’s Policy (BOP)

These policies are like a general liability insurance policy on steroids. They combine several insurance coverages (like general liability coverage) into one convenient package at a reduced rate. A BOP might also include coverage that protects your business property and equipment and helps you pay the bills if your business needs to close temporarily.

b. Workers’ Compensation

If you have any employees, workers’ compensation coverage is mandatory by law. If any of your employees are injured at work, this coverage will generally cover their lost wages, medical expenses and rehabilitation expenses.

The cost and type of business insurance you’ll need will depend on what kind of work you do. For example, as an independent construction worker you might not be eligible for a BOP because your industry is considered high risk. In that case, you’d probably be better off going with a general liability policy.

To choose the right policy, you should reach out to an independent insurance agent to discuss your insurance needs and get some quotes to see how much these policies will cost you.

How much does Business Insurance cost?

In 2019, the national average monthly cost of a new 12-month business insurance policy ranged from $46 for professional liability to $85 for workers’ compensation.

  1. Long-Term Disability Insurance

If you have an accident or health condition that prevents you from working, disability insurance kicks in and provides an income for you and your family.

Disability insurance is one of the most overlooked types of insurance out there. There are more than 51 million working adults without disability coverage.

More than 25% of today’s 20-year-old’s can expect to miss at least a year of work because of a disability before they reach retirement.

There are basically two kinds of disability insurance: short-term and long-term. Don’t bother with short-term disability, which is usually meant to cover three or six months. Your emergency fund should be your short-term disability plan.

But long-term disability insurance—which is designed to kick in after short-term disability ends—is a must-have. It is recommend to buy disability coverage that will pay 60–65% of your estimated regular income.

Look for disability coverage that pays if you can’t perform the job you were educated or trained to do. That’s called occupational or “own-occ” disability. It’s the most flexible form of disability insurance, and it’s the best way to protect your income if something happens to you.

How much does Long-Term Disability Insurance cost?

The cost of a disability policy – especially an individual policy – can vary greatly based on benefit length and amount, age, gender, occupation, and riders. One rule of thumb is that you should expect to pay between 1 to 3 percent of your annual salary.

The amount you pay for the policy can be in the range of $25 to $500, again depending on many factors particular to your situation. The benefit of an individual policy is that it usually isn’t taxed (unless paid for with pre-tax dollars); for a group plan if paid in part by your employer, the benefit will be taxable.

Conclusion

You may take all the care in the world, following safety guidelines by the book and ensuring your workspace is safe, but the unfortunate reality is, accidents can still happen. A simple incident could be enough to cause havoc not only to your business’ reputation but also where it hurts most, your back pocket. As a self employed contractor, it is in your best interest to get some insurance to back up your business. You can analyse the policies listed above to see which ones suit your situation best.

Ajaero Tony Martins