What Insurance Do Consultants Need?

No matter the industry, your business will inevitably face its fair share of risks and liabilities. While it’s easy to simply say that everyone should have a general liability insurance policy, such policies have limitations in coverage. This is especially true if you are legally considered to be a professional consultant, which has its own particular legal vulnerabilities and liabilities. 

Naturally, you might wonder then, what insurance do consultants need? Below, we’ll answer that and more.

Consulting in a Litigious Climate

The world of business is filled with a wide variety of consultants that specialize or differ in their areas of expertise. Regardless, they share a professional role wherein they lend their expertise, advice, opinions, and recommendations to clients. At its essence, the job is to help clients cut costs and/or optimize their businesses.

But what happens when you “promise results” but they don’t materialize, or your client loses money? 

We live in a very litigious world, where it’s all too easy to take someone to court. In many cases, such an outcome would be disastrous for your business. It does not matter whether you acted honorably or that the ex-client has a valid case; simply having to hire lawyers to defend your good name could wreck your business and cost tens of thousands of dollars. 

Such concerns don’t even account for normal liabilities any business might face (like potential damage to property or harm to employees). This is especially concerning for small businesses, many of whom are woefully underprepared to operate in this type of litigious climate. Why, according to Forbes:

A recent survey by Manta and Insureon found that fewer than three in 10 small business owners have a business owner’s policy, the basic business insurance that covers general liability insurance and commercial property insurance to protect you from loss. Even fewer (21%) have Errors & Omissions (E&O) or professional liability insurance, 17% have workers compensation insurance, 6% have business interruption insurance, and only 2% have cyber insurance.

With this in mind, we can now turn towards answering the question, “What insurance does a consultant need?” 

What Insurance Do Consultants Need?

So, do consultants need insurance, and what kind? If you are a consultant, the following are some must-have insurance types that should be included in your overall policy: 

Professional Liability Insurance 

Also known as errors and omissions (E&O) insurance, this protects you from the liability caused by human error. Per Forbes:

Professionals typically consider this insurance when there is a risk associated with their line of work. These risks increase the possibility of errors or faults in products and services and can result in financial losses or other harm by the business (the policyholder) to the injured party (the consumer). Recovering from a lawsuit that can take a toll on a business, and a professional liability insurance plan could soften the blow of various expenses.

Typically, professionals are considered to be people that have one-on-one interactions with clients, wherein they provide their expert advice and recommendation. Therefore, almost any occupation that requires specialized knowledge, education, or a skill set that is not commonly possessed by a layman will require this special coverage. 

Examples of these types of occupations include:

• Architects
• Engineers
• Accountants
• Auditors
• Insurance Agents
• Real Estate Agents
• Personal Trainers
• Beauticians
• Barbers
• Social Workers 
• Counselors
• Money Management Consultants
• Property Managers
• Information Technology Consultants
• Travel Agents
• Veterinarians
• Management Consultants

What Does Professional Liability Insurance Cover? 

All of the aforementioned consultants and professionals are legally expected to meet a certain standard of care within their industry. Unfortunately, any consultant can be sued for negligence, regardless of whether or not they acted in good faith or provided good advice. In either case, professional liability insurance helps you get a lawyer, pay for legal expenses, and covers damages if you’re found liable. You should also be aware of the fact that it typically does not cover legal fees if you file a suit; however, it may in the case of filing a counter-suit. 

Generally speaking, professional liability policies will provide coverage for:

• Omissions
• Actual errors
• Alleged errors
• Professional negligence
• Breach of duty
• Misleading statements
• Claims resulting from the performance or non-performance of services 

That said, there isn’t a universal E&O policy. According to the Balance SMB:

Many E&O policies are designed for specific types of professionals. For example, medical malpractice policies are intended for physicians while architects and engineers E&O policies are devised for design professionals. If an industry-specific form isn’t available, an insurer may provide E&O coverage using a miscellaneous professional liability policy. This non-specific E&O policy form is often used to insure “non-traditional” professionals like consultants, travel agents, and construction managers.

Due to the complexities of professional work and contract law, if you wish to obtain the right professional liability insurance, be sure to take the following actions when you meet with your insurance broker:

• Be ready to discuss in detail the type of consulting services you do.
• Have documents and copies of typical contracts that you would have a client sign, or they would have you sign.
• Ask for a comprehensive overview of what is not covered by the policy they’re offering.  

Bodily Injury and Property Damage Insurance 

A general liability policy is a must-have for just about every type of business. Even those that don’t specifically need it will often have clients that require you to have it. Typically, it’s a policy that encompasses coverage for a consultant for any of the following:

• Bodily injury
• Personal injury
• Property damage 

That said, for coverage to apply, one of those three things had to have been the result of the business’ operations, products, or an injury occurring on the business’ premises. And, similarly to professional services, not every general liability policy is the same. According to Investopedia:

Commercial general liability policies have different levels of coverage. A policy may include premises coverage, which protects the business from claims that occur at the business’ physical location during regular business operations. It may also include coverage for bodily injury and property damage that is the result of finished products. Excess liability coverage can be purchased in order to cover claims that exceed the limit of the CGL policy.

Despite that, generally speaking, it will cover:

• Property repair or replacement if you damaged it. 
• Medical bills if someone gets hurt at your office or at the place of work. Note that this doesn’t apply to employees.
• Legal costs and compensations if you’re at fault. 

Workers Compensation

Even if you run a solo consulting operation, the vast majority of states require that you have worker’s compensation insurance. Failure to do so can result in stiff fines and penalties. 

But what’s worker’s comp? Per the U.S. Department of Labor:

Workers’ compensation (workers’ comp) is a form of accident insurance paid by employers. No payroll deductions are taken out of employees’ salaries for this insurance. If you’re injured on the job or acquire a work-related illness, workers’ comp will pay your medical expenses, and if you can’t work, it will also cover wage-loss compensation until you’re able to return to work.

If you are the owner of your business, one of your most important roles involves taking care of your employees and ensuring that they operate in a safe work environment. And, truth be told, a workplace injury can completely cripple a consulting business, particularly if it doesn’t have worker’s comp. So, if you’re worried about how much insurance is for a consultant, remember what expenses you’d have to pay without it. In such cases, you’d be on the line to pay out of pocket for:

• Medical costs
• Legal expenses
• Wages lost 

Business Personal Property (BPP) Insurance 

Whether you work at home or in an office, BPP protects all of your business infrastructure and property from damage. Per Investopedia: “[It] insures against owned business personal property and non-owned business personal property. Most business and personal property coverage forms (BPPCF) insure against all categories of peril, basic causes of loss, broad causes of loss and special causes of loss.”

 So, while this covers the vast majority of perils a consulting business’ property may face, there are some exceptions, including:

• Flood damage
• Wear and tear
• Earthquake damage

For consultants, this is especially nice to have since it covers mobile devices, tablets, and laptops that you use when you’re on the go. Additionally, seeing as a large portion of many consultant’s time is spent at on-site meetings, you don’t have to worry about such essential tools of the trade being damaged, lost, or stolen. 

Obtaining Insurance for Consulting

If you plan on working within the professional space for any period of time, it’s vital that you consider the benefits of consulting insurance coverage that includes E&O, worker’s comp, general liability, and property insurance. In addition, it’s absolutely worthwhile to look into additional insurance coverage plans such as cyber liability insurance or directors’ and officers’ insurance. 

All of these policies can protect your consulting services and ensure that it is being shielded from any hurdle thrown its way. So, be sure to do your due diligence and see what specific policies are ideally suited for your consulting practice. Once you’ve done that, you’ll be ready to speak to a NOW Insurance advisor. Together, we can discuss your particular needs and then get you situated with the best policy for you! 

Sources

Forbes. Business Insurance: The Safety Net Your Small Business Needs. https://www.forbes.com/sites/allbusiness/2018/12/06/business-insurance-safety-net-your-small-business-needs/#2825ff10319f

Forbes. Three Questions Professionals Should Ask About Professional Liability Insurance. https://www.forbes.com/sites/forbeslacouncil/2018/08/23/taking-a-closer-look-at-professional-liability-insurance-in-california/#9a614e631d6f

The Balance Small Business. Who Needs Errors and Omissions Liability Coverage? https://www.thebalancesmb.com/who-needs-errors-and-omissions-liability-coverage-462644

Investopedia. Commercial General Liability. https://www.investopedia.com/terms/c/commercial-general-liability-cgl.asp

U.S. Department of Labor. Worker’s Compensation. https://www.dol.gov/general/topic/disability/workerscompensation

Investopedia. Business and Personal Property Coverage Form. https://www.investopedia.com/terms/b/business-personal-property-coverage-form-bppcf.asp