You have an advanced degree and years of experience. You enjoy having a flexible schedule and meeting new challenges each day. Your clients are pleased with your consulting services and highly recommend you to other business owners. Now that your consulting dream has been realized, don’t waste another minute waiting to buy Liability insurance. After making such a huge emotional and financial investment in your consulting business, buying Liability insurance is really a necessity.
The pricing for Liability insurance is shaped by various factors like industry type, business size (in both payroll and number of staff members), geographic location, policy limits and terms. Each insurance carrier has their own rate tables and assigns pricing based on their distinctive underwriting guidelines. So, your consulting firm will receive liability quotes unique to its own design, as well unique to each insurance company.
A consultant liability insurance policy may vary between $1,000 per year for a single consultant to $3,000 per year for a medium sized consulting firm. After looking at everything a Liability policy can do for you and your business, you will most likely find this cost to be very low.
What Would My Consultant Liability Policy Cost and Why?
It’s normally recommended that a consultant buy both General Liability insurance and Professional Liability insurance. The Professional liability (E&O) insurance is important because your services are based on professional opinion and clients are paying for this advice, the same as a financial planner or insurance agent.
Commercial General Liability insurance basically covers you for everything that isn’t covered under your E&O policy. For example, if a client falls over a loose carpet in your home office and breaks his/her leg.
|Policy Type||What Policy Covers|
|Commercial General Liability (CGL) Insurance||Will protect your consulting business in the event a client files suit due to bodily injury or property damage.|
|Professional Liability Insurance (aka Errors & Omission or E&O)||Professional (E&O) Liability insurance is meant to protect you if a client files a liability lawsuit specific to how you did not live-up to your professional obligations. Professional (E&O) liability insurance will|
safeguard your business against any claims for unintentional mistakes,
inaccurate advice, violations of good faith, and general negligence.
How Does Your Industry Impact Your Cost?
The insurance company is going to review all aspects of your consulting business to determine your level of risk and, therefore, the cost of your premiums. The theory is that the riskier the industry the more likely a civil lawsuit may arise in the future.
For example, an IT consultant that makes a programming error during their client’s IT project may cost the customer $300,000 in damages. On the other hand, a fitness coach that provides insufficient instruction may cause a fitness student $50,000 in medical damages.
Consulting service risks are viewed a bit differently than other types of businesses. This is because consultants have specialities such as human resources, IT, or accounting. The underwriter will evaluate your particular speciality, within the consulting industry, when considering your risk.
It all comes down to the type of services you perform and the financial investment your clients make in those services.
How Do Liability Limits Impact Rates?
If you need homeowners or car insurance that pays more for damages, you will usually have to pay for a higher premium. This is the same concept for Liability insurance. More coverage means a higher premium. In the long run, paying a bit more in premium now may actually save your business millions of dollars someday.
The most common General Liability policy limits are $1 million occurrence / $2 million aggregate. This is how it breaks down:
- $1 million occurrence limit. The insurance company will pay up to $1 million to cover any single claim.
- $2 million aggregate limit. The combined total (aggregate) amount that the insurance company will pay for all claims during the policy term is $2 million.
You have the option to select from a range of liability limits. The above figures are simply the most popular. Policy limits make a huge impact on the premium cost of insurance because they determine how much liability coverage the insurance carrier will provide.
Some small business owners like yourself choose liability limits based on the exposures within their particular industries. Other small business owners might select coverage amounts because a client stipulates the amount needed to complete the project. For example, perhaps a large corporation is opening a new office in your area and you want partner with the corporation to help with hiring and training staff. The Request for Proposal (RFP) document clearly states you must hold an active $1,000,000 liability policy to be selected. If you want to be able to work on this amazing project, you will want to be sure to submit a Certificate of Insurance (COI) showing $1,000,000 of in-force liability coverage.
You should also consider the pitfalls of being underinsured. You may select a $300,000 limit thinking that will more than cover any damages you can imagine. Hopefully, that is true. However, if your liability policy doesn’t have enough coverage to pay for all the legal fees and damages stemming from a lawsuit, you will have to come up with the remaining funds on your own. This could mean deducting funds from your company’s business account or even borrowing money from your personal accounts.
Find the best liability limits for your business at BizInsure.
How Do I Save On Liability Insurance?
If your consulting firm hasn’t had any previous claims history or past litigation, you will most likely be able to secure affordable insurance rates right from the start of the coverage. Of course, you’re going to want to keep things that way!
Below are a few tips to help you save on your liability insurance premiums.
Be proactive about managing your risks. This is by far the most significant way to save yourself money and to avoid future lawsuits. Be sure to develop a risk management plan for your business. In fact, the insurance underwriter may ask for some information about your risk management plan. This lets the insurance underwriter know if you are being proactive in avoiding litigation.
If you aren’t already doing these things, you may want to start!
- Design an orientation for your employees. Keep the training program in writing for future reference. Be sure every new consultant understands and receives the same exact training.
- Have your attorney review your current contract to determine if it needs to be improved (and how) for liability purposes
- Consider a waiver for your new clients, depending on the project
- Keep your home office clean, clutter-free, and organized
- Be sure to protect your client’s data and any confidential information you have access to as a hired consultant
- Keeping detailed documentation on file is important in all phases of your work with a client. You want to be sure deadlines and expected outcomes are understood by both parties.
Click here for more tips on Liability insurance for consultants.
Pay your entire premium upfront. Usually, you can pay your premiums monthly or annually. The best option is to pay the entire 12-month premium up-front. This way you may receive a discount for paying in full. Plus, you’ll avoid paying any finance fees that are applied when you pay for the insurance month-to-month.
Now that you’re working as a consultant, it’s very important to protect your business. Liability insurance is an excellent way to do so. Being a consultant means you may benefit from both a General Liability policy and a Professional (E&O) Liability policy, which the average annual cost is usually a minimum of $1,000 for a Liability insurance plan.
If you think it over, you’ll see a $1,000 premium is minimal in comparison to the coverage and security your liability policy will provide. The coverage limits you may select from usually vary between $1,000,000 and $2,000,000.
In addition to purchasing Liability insurance, you can also minimize your exposure to risks without spending any cash. For example, document all agreed-upon deadlines, project scope, and any other significant information about the work. Small, consistent steps such as these require little time and no money but can save your bottom line thousands of dollars. Liability insurance may not even be on your “to do” list today but it should be.