What Insurance Do You Need As A Consultant?
No one ever talks about insurance for consultants, that's a shame.
If you’re acting as a consultant, you should have insurance.
If you don’t, not only will many large organisations refuse to work with you, but you’re exposing yourself to extraordinary risks.
Many Large Firms Won’t Hire You Without Insurance
Insurance protects clients from claims against you. Imagine you provide “bad” advice which causes a million dollars of damage.
The organisation may sue your business. But if your business only has $10k of assets, they lose even if they win.
However, if you have $2m worth of insurance, they get the money from insurance companies. It’s a win for you (you get to stay in business) and it’s a win for them (they get compensation for damages).
But even without this, you should still have insurance.
It’s not professional to be uninsured.
Doesn’t A Limited Liability Shield Protect Me?
Setting up a limited liability corporation (LLC) is step one when you become a consultant. This essentially separates you and your assets from the business and its assets. The law recognises your LLC (or LTD) as a separate entity from yourself. This means the LLC can be sued or pursued for claims, but not you.
So, does the LLC protect you against all claims?
Unless you’ve committed fraud or mingled your personal finances with business finances (you should have separate bank accounts for each), you’re reasonably protected against claims.
The catch is as you become more successful, the assets in your business account might begin to swell. FeverBee has seven figures in assets at this point. Being sued when you have $10k in the account is a very different proposition from when you have $1m+ in your accounts.
If you don’t have insurance, you might be sued and lose all of it. And even if you don’t lose, the legal costs alone can consume a huge percentage of it. Any large organisation which pursues a legal case against will quickly drain your resources….unless you have insurance to cover these legal costs.
For this reason alone, you should have insurance to cover your business.
What Insurance Should I Have?
If you’re offering consultancy, you have insurance.
I’d recommend:
Professional Indemnity Insurance ($2m minimum). This is probably the most important insurance for a consultant to have. It protects you against claims of damage caused by negligent services and advice. Some typical examples of these claims include:
If you recommend a platform vendor which later doesn’t fulfil the specifications.
If you guarantee an action will result in an outcome that it doesn’t.
If a website you helped set up is used for using copyright photos.
If you design a system in a manner which results in a data hack or breach.
etc…
You can probably come up with a bunch of similar ideas yourself. Any time you’re providing advice, there is a slim possibility you might provide advice in error (or, more likely, which the client perceives to be in error).
Then there is an even slimmer possibility the client may pursue damages against you. On a long enough time scale, the odds of this happening increase.
Thus you should have insurance to cover potential claims against you (I’ve had it for a decade and never used it - but I’m glad I have it).
Public Liability Insurance ($2m minimum). Public Liability Insurance covers a business for claims made by members of the public who suffer an injury or property damage as a result of the business's activities.
For example, you might be providing services to a client at the client's premises and accidentally damage a piece of equipment or property. If the client decides to make a claim against you for the cost of repairs or replacement, Public Liability Insurance would provide coverage for the costs associated with defending the claim and any compensation awarded to the client.
Likewise, if you’re conducting a training session for a client and a participant suffers an injury, they may make a claim against the consultant for compensation.
I know one consultant who once accidentally damaged a costly piece of art in the foyer of a company headquarters. They weren’t required to pay for it, but the cost would have been ‘mid-five figures’ if they had been.
Employers’ Liability Insurance ($10m minimum). If you have employees or contracts, then you should absolutely have Employers Liability Insurance. This protects you if any of your team claim for injury or illness as a result of their work for you. For example, if one of your team suffers an injury while working on a client’s premises (or potentially even travelling to and from the premises), employers’ liability insurance would provide coverage for costs associated with defending the claim and any compensation awarded to the employee.
Even if you have contractors working on your behalf, it’s still highly recommended you have this insurance and coverage to cover them.
Crisis Containment Insurance ($25k minimum). This is probably the only insurance I’d list as optional but you should probably still have it. Crisis containment insurance covers your costs associated with managing and responding to crises such as:
Data breaches or cyber-attacks
Accidents or incidents resulting in injury or death
Disasters or natural events
Reputational damage from negative media coverage or social media activity
Legal or regulatory investigations
Check the wording carefully to know exactly what this does or doesn’t cover. It may often cover costs for crisis communication, legal fees, public relations efforts, and other expenses related to managing the crisis and protecting your organization’s reputation.
It may also cover situations where you’ve provided advice which has caused a crisis.
Understand the Terms and Conditions
It’s important to actually spend an hour reading through the terms and conditions of the policies you purchase. Pay close attention to areas where you are not covered or circumstances that might invalidate your insurance.
Many insurance policies, for example, might become invalid if you begin offering new types of services or engaging in new activities (e.g. hosting events!).
Other policies won’t cover you in certain regions. You might violate your policy by accepting clients in regions which aren’t covered by your insurance.
There are other quirks too. Many years ago, my policy only covered North America and EU countries. When the UK left the EU, I suddenly became uninsured to work in the UK (which is obviously rather problematic). You should also be mindful of accepting clients from clients based in countries which may fall victim to political sanctions or operate under laws very different from those of your country.
Also, pay attention to what the claims process might look like. For example, my laptop was recently damaged on a work trip. I claimed for repairs only to discover I had to make the claim before the repair or it was invalid. I also didn’t collect the photographic evidence and proof in advance. Knowing in advance what’s required prepares you for what to do when situations do happen.
Get Insurance
I know no one wants to think about insurance. But you should definitely get insurance now because:
Many large organisations won’t work with you without it.
It protects you from legal claims and costs.
It protects your clients.
That last point is important. In my opinion, having insurance is a moral duty to your clients. It means if something goes wrong, they can pursue claims (as they should) and not discover there aren’t any assets to gain.
Not every client asks for it, but that doesn’t mean you shouldn’t have it.