As the owner of a consulting business, you provide expert advice to your clients in your area of expertise. While your business strives to provide the highest quality services to your clients, sometimes clients may be unsatisfied with your work and sue you, whether or not it is your fault. Additionally, accidents can happen, whether on the way to visit a client or at a client site itself.
The types of consulting businesses include:
- Business Consulting
- Marketing Consulting
- Management Consulting
- Education Consulting
- HR Consulting
- Market Research
When buying insurance for your consulting business, your business enters an agreement with an insurance provider by paying what’s called a premium for an insurance policy. After buying insurance, the insurance company will cover your consulting business financially against accidents or errors that are specified within the details of the insurance contract.
Whether you are an independent consultant or the owner of a consulting business, acquiring sufficient insurance coverage is an important part of maintaining your business and protecting your finances.
Before purchasing insurance for your consulting business, it is essential to understand what types of coverage are available.
Table of Contents
- Types of insurance for consultants
- Additional insurance coverages for consultants
- Insurance coverage for your employees
- Which kinds of consulting businesses need insurance?
- How to get insurance for consultants
- Questions to ask your insurance provider or agent/broker
Types of insurance for consultants
Professional Liability Insurance (also known as Errors & Omissions Insurance) protects your business against allegations of professional negligence. This insurance covers your consulting business for damages awarded to a client after a legal process, as well as any legal fees to defend against claims.
Professional liability insurance is arguably the most useful and important coverage for a consulting business. Your services help clients shape and define their own organizations, so an unhappy client may sometimes hold you responsible for any financial problems they suffer. Should that blame escalate to legal action, professional liability insurance will protect your business’ financial interests.
Example: A client says you have given bad advice that directly leads to their business suffering financial loss. The client sues your business for damages.
General Liability Insurance provides protection for your consulting business if someone is injured or if their property is damaged when you are conducting your business. Example: You are visiting a client’s office. You bump into a piece of expensive artwork and damage it. The client sues you for the cost to repair the artwork.
Commercial Property Insurance covers consulting businesses that rent or own an office. If your business owns your building or office condo, commercial property insurance can provide protection against physical hazards to the building, such as fires, windstorms, and broken water pipes. Additionally, whether you rent or own, this insurance can provide coverage for business property stored at your office such as furniture, computers, and artwork. Example: A water pipe in your office breaks, leaking water and damaging the floors and furniture.
A Business Owner’s Policy for small consulting businesses can combine general liability and commercial property insurance policies together into a single policy, which can have a lower premium than buying the policies separately.
Workers’ Compensation Insurance provides coverage for your consulting business when claims for work-related injury or illness are made by employees. Worker’s compensation insurance covers an employee’s partial lost wages while he/she is unable to work, as well as medical and rehabilitation costs. This type of insurance is mandatory in most states if your business has employees. Example: An employee suffers from painful carpal tunnel syndrome caused by too many hours worked at the office and needs to seek medical attention and take time off work.
Additional insurance coverages for consultants
The types of insurance for consulting businesses listed above are the most common coverages for consulting businesses. There are several other types of insurance that can provide additional coverage for your consulting business, depending upon your business’ circumstances.
Commercial Auto Insurance can protect your business if your business owns vehicles titled in the business name. If your business owns vehicles, commercial auto insurance may be required by law. Additionally, if you or your employees use personal vehicles for business purposes, such as driving from your office to a client site, you may also need hired and non-owned commercial auto insurance coverage.
Data Breach / Cyber Liability Insurance protects your business against the perils of cyber threats if your business is breached or hacked. These costs can include paying ransom demands, restoring data, offering credit monitoring to clients, and managing the cost to restore your company’s reputation.
Directors and officers insurance gives company directors or officers protection against allegations of a breach of fiduciary duty. This insurance can personally cover directors and officers, including the costs of legal fees and damages awarded against them.
Employment Practices Liability Insurance (EPLI) provides financial help to cover legal and representation costs alongside any payments required if your business is sued by a current or former employee accusing your business of wrongful treatment, such as discrimination or harassment.
Umbrella insurance supplements the coverage you have under your general liability and auto liability policies. For consulting companies with potentially large exposures, umbrella insurance can provide affordable extra coverage that can kick in if the limits of your primary liability policies are exhausted.
Insurance coverage for your employees
As an employer, your company can sponsor group insurance plans for your employees. Studies have shown that health, life, and disability insurance are benefits that employees value highly.
Group health insurance helps your employees pay for medical and healthcare expenditures, including everything from primary care to hospitalizations and surgeries. Offering health insurance to your employees can not only keep your employees in better health, but it can also help to retain your employees.
Group life insurance provides a financial payment to an employee’s family or other survivors if the employee unexpectedly dies. The death does not have to be work related. Although individuals can purchase life insurance on their own, as an employer-sponsored group, you can usually obtain better rates than an employee could get on their own.
Which kinds of consulting businesses need insurance?
All consultants should purchase insurance, whether you are a major international business or a one-man operation working from a home office. Insurance can protect your business and livelihood from unfortunate events that sometimes happen. Coverage also shows clients you are a serious organization, helping you engage more with new customers.
If your business meets any of the following factors, you should consider purchasing insurance for consultants:
- You work with clients and may be liable
- You hire employees
- Your business owns valuable property, such as furniture, computers, or artwork
- You have digital data and networks that need to be protected
- Your consulting business owns company vehicles
Consultants have a critical role in setting standards for other businesses through advice and guidance. Leading by example by having insurance protection is important for the well-being of your business and engagement with clients.
More practically, there’s no getting around the fact every business needs to have insurance. Without coverage, your livelihood, assets, and the very future of your organization are all at risk. Think of insurance for your consulting business as one of the most important investments you make in your business.
Why is insurance for consultants important?
At its core, a consulting business provides expertise to other organizations to help them grow. Whatever type of specialized consultant you are, you will be dealing directly with clients. Even with the best intentions, working with customers can sometimes go wrong.
Luckily, some critical problems that can affect your business can be mitigated with insurance for your consulting business.
Clients may demand you have liability insurance.
- Benefits: Your business will work directly with other companies, and clients may want to know interactions are covered from all sides. Having insurance for your consulting firm can help your business stand out in a crowded market and show clients your organization is legitimate and can be taken seriously.
- Risks: If you do not have a protection policy in place, your business is at risk when dealing with clients. If something goes wrong, and the client directly blames your business, legal action may follow. Without insurance, you will be picking up the entire cost of legal representation and any money awarded to the client from you.
The law may mandate consultants to have certain types of insurance, such as workers’ compensation insurance.
- Benefits: In most states, companies are required by law to carry workers’ compensation insurance. Even in the safest conditions, accidents can happen, which is why insurance is a necessary solution. If an employee is injured while working for you, insurance will cover you financially as well as make your business compliant with the law.
- Risks: Without workers compensation, your organization is wide open to financial loss should a worker get injured or sick as a direct cause of working for you. Moreover, multiple injuries could lead to financial losses that ruin your business. As many places make employee compensation part of the law, avoiding the coverage can land you in legal trouble resulting in penalties and fines.
How to get insurance for consultants
Choosing an insurance company
Choosing the right insurance company is the most important step in purchasing insurance for consultants, and several factors should be included in your decision.
Factor 1 – the financial strength of the insurance company: While you may think getting the best-priced policy should be your main goal, it is more important to ensure you purchase insurance from a financially stable provider. It’s worth remembering that insurance claims are paid directly from the finances available to the insurance company. In other words, if the insurance provider is financially stable, they will be able to fulfill their claims commitment. When an insurance company does not have financial stability, it may collapse and be unable to support you.
While this is rare, it does happen. You want to know your company is always secure and certainly don’t want the surprise of finding out your insurance provider cannot cover your losses when you make a claim.
Of course, this leads to the obvious question: how do you know your insurance company has financial strength? Unfortunately, it is not as simple as just purchasing a policy from the biggest industry names, because even giant insurers go through periods of financial instability. Luckily, there are rating agencies that grade insurance companies in terms of their financial strength. Some of the major rating agencies are Fitch, Standard & Poor’s, A.M. Best, and Moody’s.
Factor 2 – Choosing the right price: Cost is important for any business, but the price of insurance is not the only factor. Instead, your consulting business will be better served by looking for the policy that is the most affordable but also meets all your requirements.
Different insurers have different methods for determining the premium you will pay, although there are some industry standards. For insurance companies, pricing is all about determining how much risk your business presents. The key to finding the best deal that meets your company needs is to shop around. Speak to insurers, use online quote engines, and work with brokers to ensure you get the coverage you require to protect your business.
Factor 3 – Choose an insurer with a reputation for strong customer service: While you want your insurance provider to be financially stable and priced competitively, it is also important that you can engage with the company. It is possible you will need to make a claim, change policy details, or update personal information. In these cases, you want to deal with a company that has good customer care. While most major carriers have good customer service records, some spend more time and effort on ensuring their customers are taken care of. This may seem unimportant, but dealing with welcoming, qualified, and thoughtful professionals will be vital during a claims process.
Direct writers, agents & brokers
When looking for insurance for your consulting business, you have several options for finding the best deal: brokers, direct writers, and agents.
- Direct writers work independently and sell insurance without the use of a middleman, such as a broker or agent.
- Insurance agents work with insurance companies to sell their products but are still independent businesses that can represent more than one insurer. Some agents are called “captive” and work specifically for a single insurance provider.
- Insurance brokers are arguably your best friend when shopping for coverage. While brokers are independent like agents, they work for you instead of the insurance company. This means a good broker should have your best interests at heart and help you find the most desirable policies and prices.
Insurance policies are a fixed term where the insurer provides coverage to your company for a predetermined fee called a premium. Policy lengths vary, but the most common insurance lifecycle lasts for one year and must be renewed annually.
Through each renewal period, you are free to shop around for new insurance companies, while your existing provider will offer you a new premium. How much the new premium costs can depend on various factors; it could be more expensive if you have made a claim during the policy term, or it could be cheaper if you have made no claims and always paid on time.
Consultants can typically cancel an insurance policy at any time, although most insurance companies will demand an advance notice of between one and two months. Importantly, all details of your insurance coverage are noted in the policy contract, including price, notice periods, and protection benefits. If your company has prepaid any premiums before canceling a policy, the insurance company will provide a refund for the already paid coverage.
It is very important to keep up-to-date with the insurance policy for your consulting business as the insurer can cancel the policy for missed payments. However, most policies will provide a grace period that protects you from missed periods. It is worth noting the grace period in your contract as it can vary, being as short as 24 hours or up to 30 days.
Limit of insurance
Perhaps the most important thing to consider when buying an insurance policy for your consulting business is determining how much coverage you need. Insurance policies have a limit, which is the maximum amount the insurer will pay your business for loss claims during a coverage period. This limit can be settled between you and the insurance company when you are purchasing the policy, but the insurer may set some framework based on the specifics of your consulting business and calculated risks.
Commercial insurance policies usually carry two limits, one “per occurrence” and another “aggregate” limit. These are important to understand: an “occurrence” limit is for a specific type of situation detailed in the policy, while an “aggregate” limit is the total an insurance company will pay during the lifespan of the policy.
Example: you have a per occurrence limit of $1 million per occurrence and $3 million per year aggregate. The insurer will only pay out up to $1 million for a single successful claim and a maximum of $3 million for multiple successful claims through the year.
Questions to ask your insurance provider or agent/broker
How much coverage do I need?
Perhaps the most important decision when buying insurance for your consulting firm is how much coverage you need. If you buy more insurance than you need, your business will be overpaying for protection that it will never need. Alternatively, not buying enough protection will mean you are not adequately protected and will have to cover some of the financial costs of successful awards against you.
Luckily, your broker or insurance company can help you understand based on risk management analysis. Factors to consider include:
- Minimum requirements from clients or landlords
- Business revenue
- Number of employees
- Types of risk exposures in your line of business
- Company assets, profits, and cash flow