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Do You Need Business Insurance if You're Self-Employed?

Being self-employed is empowering. You get to dictate your working hours, your team, and the work you engage in. Data shows approximately 16 million people in the U.S. are self-employed, marking an increasing popularity in self-employment.

However, the professional freedom self-employment gives you comes with several caveats. You're at the disposal of several significant risks that can affect your business and livelihood. That makes investing in the right insurance policy to protect you and your business crucial.

Self-employed people need to invest in insurance policies such as a business owner's policy, term life insurance, and self-employment health insurance.

Here's what you need to know about getting insurance as someone who is self-employed and how much it will cost you.

Who Needs Self-Employed Insurance?

The Internal Revenue Service (IRS) defines individuals as "self-employed" if they satisfy the following conditions:

  • They run a business or trade as an independent contractor or sole proprietor

  • They're a member of a partnership that carries out a trade or business

  • They're in business for themselves, including a part-time business

You most likely need a self-employed insurance policy if you fall in this category. This policy bundles various insurance policies to ensure you're well protected from various risks a self-employed individual might face while conducting their trade.

Some of the most common careers that can fall under self-employment include:

  • Childcare service

  • Carpenter

  • Consultant

  • Electrical contractor

  • Delivery service

  • Florist

  • Event planner

  • Freelance writer and editor

  • Food caterer

  • Hairstylist and salon professional

  • Graphic designer

  • Interior designer

  • Handyperson

  • Painter

  • Lawyer

  • Pet care services like grooming, boarding, walking, and training

  • Photographer

  • Online teaching and tutoring

  • Plumber

  • Roofer

  • Web designer

  • Therapist

  • Real estate agent and broker

What Types of Insurance Do You Need as a Self-Employed Professional?

Self-employed individuals need various insurance policies to get adequate coverage against most risks they might face. These coverages include the following:

Self-Employed Health Insurance

Health insurance is not optional if you're self-employed. You risk facing penalties from the government if you lack self-employed health insurance.

Moreover, you're putting yourself and your family at risk if you run into a health emergency. Not only can you not access affordable healthcare without health insurance, but you also cannot share the costs of health insurance with your employer if you have a daily job but run a side business.

Health insurance is not too expensive for self-employed individuals. The government offers tax deductions on health insurance premiums paid by self-employed professionals, reducing how much you owe the government in taxes.

Term Life Insurance

If your family relies on you for income, you need to get term life insurance to ensure they're covered if you pass away unexpectedly on the job. Life insurance replaces the income you get from self-employment once you pass away.

However, not all life insurance policies are created equal.

Term life insurance is the most recommended policy. It provides coverage for a specific time, within which your family is eligible for a payout if you pass on.

Term life insurance policy is much less expensive and offers better value than whole life insurance and other types of cash value insurance.

Business Insurance

All jobs have a risk involved. Some professionals are more likely to be injured on the job, while others are likelier to face lawsuits. Therefore, you need a good business insurance policy that can cover most of the risks involved with your business.

Typically, you'd want to invest in the following four business insurance policies:

General Liability Insurance

General liability insurance offers coverage against lawsuits resulting from mishaps or accidents on the job. For instance, someone might slip and fall on a wet floor in your shop, or you might break your customer's expensive vase during a house cleaning job.

General liability insurance also protects you from lawsuits resulting from slander.

Professional Liability Insurance

Professional liability insurance, also known as errors and omissions insurance, protects you if a client gets harmed by the advice you gave or the service you rendered. Unlike general liability insurance, which covers physical damages and injuries, professional liability covers financial loss.

Business Owner's Policy

A business owner's policy (BOP) is the most recommended for self-employed professionals. It combines several insurance policy coverages into a convenient package offered at a reduced rate. These policies typically include business liability insurance, business interruption insurance, and commercial property insurance.

A BOP includes coverage that protects your business equipment and property and helps you pay the bills if your business needs to close temporarily.

Worker's Compensation

If your business has employees, you're legally mandated to have worker's compensation insurance. This coverage protects your employees if they’re injured at work, ensuring they can cover their lost wages, medical expenses, and rehabilitation expenses.

Does Home Insurance Cover Self-Employed Professionals?

The popular belief is that home insurance can cover everything, including your business property if you operate from home. However, it often doesn't compensate your business materials and equipment if they're lost or damaged due to disaster.

Home insurance is designed to cover mostly your personal belongings and physical dwelling. Your work material should be covered separately through a business insurance policy. The most common policy is commercial property insurance.

Commercial property insurance covers your business's physical assets, often including its physical location that is not your home. It compensates for losses or damages caused by fire, hail, wind, smoke, lightning, explosions, vandalism, theft, and more.

This coverage typically covers equipment, but you may want to pay for equipment insurance or equipment breakdown coverage if your business uses specialized equipment.

How Much Will Insurance Cost You?

The exact cost of insurance for self-employed professionals will vary based on several factors, such as:

  • The number of employees – The more workers you employ, the more you'll have to pay for worker's compensation insurance.

  • Insurance coverage needs – Your coverage types and limits will affect insurance premium rates. Higher coverage amounts typically lead to higher premiums.

  • Prior claims history – A higher business claims rate will lead to higher insurance premiums.

Your self-employed insurance cost will also vary based on location, business assets, the size of your payroll, and the size of properties your business owns.

Talk to an Insurance Professional

Getting insurance as a self-employed professional is vital to managing the various risks associated with your business. How much you pay for your policy will vary based on various factors such as location, the number of employees you have, and prior claims history.

Talk to an insurance professional today and get the best policy for yourself and your business.

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