Insurance for the Self-Employed: A Complete Guide to Protecting Yourself and Your Business

Written By Charlotte Insurance on April 20, 2022. It has 0 comments.

Insurance for the Self-Employed A Complete Guide to Protecting Yourself and Your Business

Being self-employed can be one of most rewarding journeys you’ll ever take. Instead of working for a company that doesn’t appreciate you or won’t offer flexibility, you can work for yourself and build a life and a business that matters to you.

But that doesn’t mean there aren’t some risks to being self-employed.

Whether you work for yourself for the financial potential, the creative freedom, or the desperate need for work-life balance, you’re now a business owner. That means you need to think like one.

The best way to protect yourself and the business you’re building is with the right insurance coverage. Here’s what you need to know.


Which Self-Employed Businesses Need Insurance?

The simple answer is that everyone who is self-employed needs insurance coverage. The type of work you do will determine the type of insurance policies you should purchase and what needs to be covered. Some people will need less coverage than others.

In general, self-employment insurance coverage focuses on two main types of work:

  • You work alone and provide a service and/or advice to clients
  • You create products which require maintaining inventory, equipment, and/or materials

In some cases, there will be overlap. For example, you may be a photographer who takes pictures for clients but you may also sell prints of photos to customers.

All self-employed businesses use equipment that helps you do your job. Freelance writers need a laptop or desktop computer. Coaches may have recording equipment to help create promotional materials for social media. Fitness instructors may have fitness equipment they use with clients. And the list goes on.

Here’s a quick list of the type of self-employed people who need business insurance:

If you work for yourself, you’re self-employed, which means you need to insure your business.


Will My Home Insurance Cover My Home-Based Business?

The quick answer is probably not and at a certain point, not at all.

When your business is still in hobby mode – meaning you haven’t made any money from it or invested a lot into materials or equipment – your home insurance might cover you. Even then, though,  the coverage could be limited depending on what equipment is lost in a covered peril. An extremely expensive custom computer may cost more to replace than the coverage limit for electronic equipment in your homeowners policy.

At a certain point, you may acquire more equipment or materials than the limited coverage your home insurance offers – even if your fledgling business can still be considered a hobby.

Once your hobby becomes a business – whether because you get a business license or once you make your first dollar, home insurance typically won’t cover anything. Why? Because home insurance is for your home and personal possessions, not for business materials, equipment or inventory. Any claims for business needs or equipment are likely to be denied.


Risks You Face When You’re Self-Employed

You may be thinking that because you’re working from home, your risks are minimal. You don’t have a big warehouse or a fancy office. You’re not hiring employees or dealing with customers walking in randomly. So what risks could you possibly face?

A lot more than you realize.

Here are just a few risks you may have to deal with when you’re self-employed:

Making mistakes that cost clients money: As a service provider, your client is relying on your knowledge and expertise. If you make a mistake and cost them money, they could sue you for the damages.

Loss of inventory, equipment, materials, and/or space to work: The space you work in or that stores your equipment and materials may burn down in a fire or you may get robbed. Without insurance, you have to pay out of pocket to rebuild and replace anything lost. You’ll spend money and time you don’t have before you can even get back to work to earn an income again.

Inability to work due to illness, injury, or life circumstance: When you’re self-employed, you don’t have back-up. There’s no company that keeps doing the work while you’re out with the flu or recovering from surgery. If you don’t work, you don’t get paid. And if you let illness or injuries go too long without treatment, they only get worse.

The reward of being self-employed can be huge. No boss, lots of freedom, unlimited income potential – but it’s important to recognize the very real risks and plan for them as best as you can. That’s where insurance comes in.


Types of Insurance You Need If You’re Self-Employed

The specific policies you need when you work for yourself depend on the type of work you do. Many self-employed people do really well with basic, and affordable, policies from Coversmart. But it’s important to understand what’s available in those policies and the specialty coverage you may also need, now or in the future.

General Liability

All businesses need a general liability policy. This covers you when a third-party gets hurt or suffers property damage while doing business with you. This could be a client who meets you in a coffee shop and has their laptop stolen. It may be a customer picking up their cake order at your home and tripping on your walkway.

Without this policy, you’ll have to pay out of pocket for their damages or medical bills. With general liability, their losses will be covered and you’ll be protected if they decide to sue.

Commercial Property

A commercial property insurance policy protects the physical items you use in your business. You may need a small policy that can replace a computer, laptop, business phone, and camera that you use as a business coach. Or you may need a larger policy that covers all the equipment, materials, and inventory for your river table woodworking business.

Without this, you’ll have to pay to replace everything lost – which can add up to thousands of dollars – at a time when you may not be earning money because you’ve lost the property you need to do your work and make money.

Commercial Auto

If any part of your work requires getting in a car, you need a commercial auto policy. This includes crafters and makers who go to markets on the weekend and tutors who travel to clients’ homes to help them. A commercial auto policy is good for self-employed people who have to drive to buy materials, drop off orders, go to the post office a lot, and even meet with clients in public places like a coffee shop.

When you’re driving for business purposes, your personal auto insurance won’t cover the claim for an accident. You need a commercial auto policy which includes the same types of coverage you’re used to in your personal policy.

Professional Liability

When even a part of your business relies on your knowledge to advise a client or customer, you face potential liability. Anyone can make a mistake but when your mistake costs someone money or time, they tend to get angry and blame you for their loss. And you could be held liable for that mistake.

Professional liability coverage protects you and helps pay the damages for your professional mistakes. Business coaches, fitness trainers, travel agents, dog trainers, anyone who provides advice as part of your business model can be held liable for bad advice and professional mistakes.

Cyber Liability

You don’t automatically need a cyber liability policy just because you’re self-employed but many more people need this coverage than they realize. Here’s how to know if you need it:

  1. Do you ask for the personal information of people you work with? This can be name and address and payment info.
  2. Do you store customer and/or client information on a computer with an internet connection?
  3. Do you process payments online through a website or through an app on your phone that stores any information – even if it’s just their telephone number?

If you can answer yes to any of these questions, you need a cyber liability policy. If your website, phone, or computer are hacked and the data you collect is stolen, you’re responsible for a lot that happens next: notifying everyone, monitoring their credit, fixing the breach, and more.

A cyber liability policy covers you when this happens. And yes, even extremely small businesses can have this happen to them.

Business Income and Extra Expense

Two things that make it harder to recover after something goes wrong, like a fire or theft, is that you have no income until you repair or replace everything and you may have to spend extra money in the meantime to become operational again. This is where business income and extra expense coverage can be extremely helpful and important.

Business income pays for your lost income until you’re back in business again. Extra expense coverage helps you pay for new expenses, like renting an office or warehouse space, until your previous location is functional again.

Umbrella Liability

An umbrella liability policy gets its name for a good reason. It’s like an umbrella – you don’t actually need it until it’s pouring outside, and then you’re glad to have it. Umbrella liability offers an extra layer of coverage. It’s for those larger-than-life claims that you can’t really prepare for.

Maybe the bad advice you gave a client cost them millions in revenue. Maybe the stolen laptop had state secrets on it. Either way, the loss is so big your basic liability policy can’t pay it all. Umbrella liability swoops in and pays the remainder of those too-big claims so you don’t have to pay the rest out of pocket.

Umbrella liability policies are extremely affordable. You can often purchase millions of dollars in extra coverage for a very affordable price.

Personal Insurance Coverage

While this guide is meant to help you navigate the business insurance you need when you’re self-employed, personal insurance coverage is extremely important, too. It’s not something you can depend on as a benefit like you can when you work for someone else. But without the right coverage, you may not have the help you need when your health fails.

The three main personal insurance coverages to carry at all times are:

Health Insurance: Health insurance allows you to see a doctor when you need it. If you let a health problem go on too long, it can become debilitating and prevent you from working.

Life Insurance: Life insurance helps your family financially when you lose your life. If your family depends on your self-employment income, this coverage can be the last time you can take care of them.

Long-Term Disability: Long-term disability coverage can help make up part of your income if you’re unable to work for an extended period of time for health reasons. When you’re self-employed, if you don’t work, you don’t get paid. A policy like this gives you the freedom to not work for a while.


Am I Legally Required to Have Business Insurance if I’m Self-Employed?

While you’re not legally required to purchase business insurance when you’re self-employed, it’s definitely a smart business decision. Insurance for your business allows you to recover from losses and get back to work without bankrupting yourself.

While insurance isn’t a requirement, there may be other requirements you need to follow when you become self-employed. You may be required to have a professional license or business license, depending on the work you do and the state you live in.

It’s also important to know if the zoning for your neighborhood allows your type of business to operate within your home. This is especially important for product or food-based businesses or any business that may increase traffic coming in and out of your neighborhood or home.

No matter how new you are to being self-employed or how small your business is, you need business insurance. If you can’t afford to replace your most crucial pieces of equipment, your business will be at a stand-still before you even get started.

Here at Charlotte Insurance, we make it easy for you to purchase insurance when you’re self-employed by partnering with CoverSmart. You can purchase a policy that fits your business needs and budget. Click here to get started!

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