Although freelancers have more freedom to choose their clients and pay rate, not having access to benefits like health insurance, vacation days, and retirement savings plans can be a major financial setback. Depending on the specifics of your freelancing job, you may also require particular types of personal and business insurance to protect you in an emergency.
Here's a guide on the several insurance policies you might want to consider purchasing as you start your journey toward financial independence.
Importance of Insurance to Freelancers
Freelancers often go without insurance or end up with the wrong policy because they need help understanding it. Given the need for more stability in their income, freelancers may prioritize setting aside money for unexpected costs above everything else.
Freelancers may get an insurance for the following reasons:
- Protect Your Business Property/Equipment
Your business property and equipment may be protected by property insurance. Even if your home and valuables may be secured by personal insurance coverage, this protection may not apply to the equipment you use for your business.
The term “equipment” can refer to a wide variety of things, such as a computer, camera, toolkit, and more. Your equipment could be quite expensive depending on the line of business you're in, so it's important to protect them through property insurance.
- It Decreases the Chances of Losing a Big Amount of Money
Larger businesses may be able to withstand a costly liability or malpractice claim without going bankrupt. Still, most independent contractors may not have the savings to weather such a storm without insurance.
- Protect Yourself
Since you are your boss as a freelancer, losing income due to a sickness or injury that keeps you out of work for a long time can be distressing. If you become disabled and cannot work due to an injury, illness, or other covered events, your disability insurance can pay you a regular benefit.
When you're self-employed, it's up to you to figure out how to provide for yourself and your loved ones in the event of an emergency since you won't have an employer to shoulder the financial burden.
Types of Insurances for Freelancers
Now that you understand why freelancer insurance is so crucial, you can now search for the best policy that meets your requirements. Here are the options you can consider:
Health and Disability Insurance
Since they cannot rely on workers' compensation insurance provided by their employers, freelancers may consider carefully acquiring health and disability insurance policies.
When an individual purchases health insurance, they pay a monthly premium in exchange for coverage of the majority of their preventative care costs and health emergencies, including doctor transportation, surgery costs, and other related expenses.
Professional Liability Insurance
Protect yourself from claims against your professional services or advice with professional liability insurance, often known as Errors & Omissions insurance for freelancers. Self-employed people interacting directly with clients while providing a service may consider purchasing this type of insurance.
Professional liability insurance may protect you from financial ruin if a client alleges that you made a mistake that negatively impacted their business. The insured's professional liability policy would cover the costs of defending against and settling such a claim.
Cyber Liability Insurance
Data breaches involving consumer information are a genuine concern for the many IT contractors who handle sensitive information. For instance, if you are responsible for your customer's credit card data being stolen or compromised in any manner, you could be held financially liable for damages. Financial scams happen daily, such as a random person sending money on Cash App to steal your money.
When a data breach occurs, the costs of informing customers, engaging computer forensics teams to determine what went wrong and how to prevent it from happening again, and paying legal fees and civil damages, if necessary, are all covered by cyber liability insurance.
General Liability Insurance
In the freelancing world, your work for a customer is your responsibility. However, just as you are accountable for the project's success, you will also be responsible for its shortcomings. Here is when the general liability insurance safety net may come in handy.
Fidelity Bonds
Self-employed people who work as contractors may opt to get bonds, essentially a trilateral contract between you, the customer, and the insurer.
Surety bonds are integral to operating as contractors in the building industry and are, therefore, likely well-known to the general public. If you fail to provide the services agreed upon in your contract with your customer, the bond's insurer will compensate them for the loss.
Commercial Property Insurance
Commercial property insurance may be necessary even for home-based freelancers, as most regular homeowner's and renter's policies won't pay for repairs to business property. You will not be covered if your computer or other business equipment is broken or stolen without a commercial endorsement extended to your home or renter's insurance policy.
If you want to rest easy knowing that your business's assets are secure, investing in a commercial property policy may be a good option.
Final Words
If you're a successful freelancer, you get to keep all the money you earn, but you're also the one people turn to when things go wrong. Having reliable insurance in place may provide you peace of mind, knowing that you're protected in the event of unforeseen professional or personal misfortunes.
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
