When Does a Freelancer Need Business Insurance?

Recently, when renewing a contract with one of my clients, I noticed an odd new requirement. The client requested that, for the term of this new agreement and for a period of no less than three years, I must maintain business insurance—at no cost to them.

I emailed my contact at the company for elaboration, and he consulted their internal legal team. While the client ultimately agreed to strike the clause requiring me to have insurance—they decided it wasn’t intended for vendors like me—I was left wondering, What if this issue pops up again?

I asked other freelancers and a chief underwriting officer about this trend. Here’s what I found out.

Turns out, clients ask for coverage all the time

Asking contractors to have business insurance is more common than you might think. While it’s often intended for freelancers who work on-site or in high-risk scenarios (think: driving or working on a video set), some clients may have a blanket requirement that all contractors have a policy in place. In some instances, clients may require freelance writers to have professional liability insurance that covers errors and omissions, public liability, and cybersecurity breaches.

Some writers have noticed more and more clients sneaking such clauses into contracts. “This is the first year clients have asked me about business insurance,” said Tom Basgil, a freelance writer in the B2B space. “Now, about one-third of my clients require it.” Basgil noted he’s seen this request crop up more frequently among B2B tech clients, specifically those in cybersecurity and software-as-a-service (Saas).

Michelle Garrett, a PR consultant, writer, speaker, and host of #FreelanceChat also recently encountered such a request from a client in the industrial equipment sector. The company said it needed all outside contractors to have liability insurance.

“It was pretty far down the line when the client brought it up,” she recalled. “We had agreed to work together and were getting all the paperwork set up when they mentioned it.” In the end, the proposed project ended up being worth the cost of purchasing insurance, so she went ahead and bought a policy.

Freelancers placed in this position may have to make similar judgment calls—is the work (and the possibility of an ongoing relationship) worth the monthly or annual cost? Do you work in an industry that might be considered higher-risk—for example, offering consulting work for financial services clients, handling sensitive data, or developing software?

Rates for business insurance vary significantly depending upon the type of work you do and the industries you engage with. The lowest rates for professional liability insurance for writers seem to start at around $23 per month, with the cost varying based on how much coverage you need and your location. Organizations like Freelancers Union offer online resources that let you evaluate a range of insurance policies and trusted providers.

A trend on the rise

As I queried more freelancers about this issue, I was stumped. It didn’t seem to make sense that a business would require freelancers with seemingly very little risk—like a writer or designer who works from home—to take on such a financial burden.

But Joe Saraiva, the chief underwriting officer at NSM Insurance Group and Dinghy, clued me in on a few reasons why clients might want freelancers to have such policies in place.

“More publishers and clients than ever require freelance writers to carry insurance—mostly as a result of a highly litigious media landscape,” he explained. “The liability protections that used to be common in freelance contracts are now few and far between.” He noted that many businesses today are doing everything they can to avoid financial losses given the tumultuous economy.

“When the unexpected happens—and it does—organizations want to ensure that they and their freelancers are protected,” Saraiva said. “[From a freelancer’s perspective], should a lawsuit arise, liability insurance can protect them from the burden of paying legal defense fees, paying compensation costs if they are found liable, and reputational damage.”

But do freelancers really need it?

The freelancers I talked to agreed that insurance is nice to have, especially if you want to land big clients—but it isn’t a must. (In full transparency, I still have not purchased a policy.)

“I don’t think that I’ll ever need to use the insurance, but I appreciate the sense of security that having it brings me,” Basgil said, reiterating that carrying insurance has become a requirement for more and more of his larger projects. “The time, energy, and expense are easily made up for by these bigger contracts.”

Garrett similarly expressed no regrets about the extra expense, though she noted she probably wouldn’t have taken out a policy on her own. “In my case, it was a dealbreaker for a lucrative six-month contract, so I agreed to carry it,” she said—adding, “I would say only get it if you are asked to.”

Saraiva offered a few points of advice for writers and other freelance creatives considering liability insurance:

• Consider the potential claims arising from the specific work you’re doing. Then, find a policy that offers the minimum type of coverage you need. Weed out offerings that charge for unnecessary coverage.

• Consider the size and scope of potential claims to determine how much insurance you should purchase. A good rule of thumb is to imagine the worst financial loss you could create for your clients, and then double it to include legal fees.

• Lastly, freelancers should look for an insurance provider that makes the purchasing process easy. Those offering online (versus paper-based) applications and policies explicitly tailored to freelancers may be a good option.

The TL;DR: I think this trend is something freelancers should pay attention to, though you probably don’t need to scramble to purchase a policy tomorrow. It sounds like more big companies are starting to require business insurance—which means you may be missing out on big paychecks by foregoing it.

This content is for general educational purposes only. We are not lawyers, and the information here is not intended to provide specific legal advice for any individual.