What Insurance Do Independent Contractors Need?

A recent study conducted by the global consulting agency Accenture estimates that by the year 2020, 40% of America’s total workforce will consist of sole proprietor independent contractors. So, if you’re thinking about switching to work as an independent contractor, running a sole proprietorship, or if you own a company that ever hires independent contractors, then the information that follows will help you understand the types of insurance policies that sole proprietors should have in place.
If you run a business that frequently hires and depends on 1099 contractors, it is highly recommended that you require contractors to have at least some commercial insurance as described below. If you’re an independent contractor yourself, the policies that follow will protect you in the event that your actions give rise to a claim.

Professional Liability

 
In many cases, contractors provide professional services like consulting or software development so they should carry some level of professional liability insurance. We’ve talked about what Professional Liability Insurance covers on one of our previous posts.

Workers’ Compensation

It is also an important to ensure that independent contractor’s purchase their own workers compensation insurance.  This type of insurance will help cover any medical bills, disability payments injuries or illnesses the contractor sustains while providing a client with their work and services.  Because of the high costs associated with worker’s compensation claims, many companies prefer to cover their contractors within their own worker’s compensation policy because the costs to the company are nominal. However, if you operate a business in an industry where the likelihood of injury to employees or contractors is high (construction, logistics, manufacturing), you likely want to avoid including contractors on your policy because their claims can negatively affect your rate for years.

Verifying Business Insurance Coverage

Properly validating and tracking the coverage for independent contractors is critical. Companies should always keep updated certificates of insurance, or proof of insurance, on file which confirm that the contractors not only have the above-mentioned coverage in place but are up-to-date with their policy. Also, companies should require that their entity’s name is added as an additional insured to guarantee the contractor’s insurance responds first. Finally, businesses should also make sure that contractor policies provide their entity with a waiver of subrogation which will prevent the insurance company from subrogating (coming after) the company for claims filed by its contractors.
As long as contractors have the coverages discussed above, both the contractor and the client will be sufficiently protected against potential claims. Do keep in mind that other insurance policies may be required, but this varies from industry to industry.
Don’t know where to start with getting the right coverage for your freelance endeavours?  Get in touch with your UniAmerica Insurance agent today or give us a call at 1-310-835-3373.