Do My Freelancers Need Independent Contractor Insurance?

So, you’re working with freelancers, and you’re wondering if they need independent contractor insurance. If you’re not sure who to ask… success, you’re in the right place!

If you are working with independent contractors, freelancers, consultants, and agencies then you must consider the risk and liability that comes with these types of workers.

You must understand whether your business insurance covers freelancers and if not – work out what you can do to limit the exposure of your business and the freelancers that you hire. 

This article is part of our guide on independent contractors.

Why is it important to ensure your freelancers are covered?

Let’s say that your company hires Alicia, a freelance legal consultant to fill out some forms on its behalf, and Alicia misses a step or makes a mistake. Your company is able to sue Alicia for damages, but will have a hard time receiving significant compensation if Alicia does not have insurance.

More critically, if Alicia’s work impacts one of your own customers, this customer could sue your company and name Alicia in the suit. As Alicia is not an employee – your own insurance policy will most probably not pay out.

So who will? If Alicia has her own insurance, then you can sue her insurance policy. If she does not have insurance, you will still be liable for the damage your independent contractor caused to your customer, but your company will not be able to seek compensation from her.

Now that’s a problem none of us want to deal with.

When you consider that most companies do not conduct background checks and reference checks on freelancers, it highlights the need to provide them with proper insurance so that you are both covered.

Top questions about independent contractors insurance

Let’s go through the most common questions you’re likely to have about independent contractors insurance:

#1 Are my independent contractors covered by my business insurance?

Many people believe that independent contractors are protected by the company’s General Liability Insurance (GLI), but this is rarely the case. 

You can add them to your insurance policy, but it is preferable to ensure they are covered by their own general liability insurance policy. 

#2 My contractor wants to be added to our insurance. Can I do that?

It is possible to add your contractors to your own insurance, by contacting your provider and adding an “additional insured”. 

However, you should know that most companies don’t see this as a preferable option, as it puts the responsibility on your company instead of on the independent contractor. 

It is advisable to ensure your freelancers have the required insurance. You can add the cost of the insurance to their payments, to ensure they won’t get hit financially due to your request.

The only time it makes sense to add contractors as “additional insured” is if you’re hiring a consultant for a long-term task, and especially if their work is high liability such as work that touches sensitive client information, and they are unable or unwilling to get the appropriate insurance for themselves.

In this case, you should remind the contractor that you’re only covering them for the work that they do for your business, and for the duration of the contract or relationship.

#3 Is it really important for freelance knowledge workers to get insured? 

Yes! Most people think that only construction workers like electricians, plumbers, repair contractors, and that kind of worker need to get liability insurance, but that’s not the case.

Knowledge workers like accountants, HR specialists, PR professionals, graphic designers, and many more can also make mistakes that will lead to significant damages. Especially in today’s compliance climate where data protection violations can result in heavy fines.

#4 Am I allowed to ask my independent contractors for proof of insurance?

You should not only ask, but you can demand proof of insurance as a requirement to start working together.

It’s also important to understand exactly what this insurance protects, including what your independent contractors are covered against, and where your legal gaps might be. 

It should be part of the onboarding process to ask for a copy of any insurance policy they have or a certificate of insurance from their provider. This will ensure that they are covered against liability. 

#5 What if my freelancer is not interested in getting an insurance policy?

Remind your freelancer that it is also in their best interests to get an insurance policy, as it can pay out for legal fees and court costs in case they are sued.

Explain to your freelancer that having insurance is even more important if they don’t have a business set up, as without insurance an independent contractor may be expected to pay any damages from their own personal assets. 

If they need further convincing, explain to them that as an independent contractor they might work with dozens of clients in the space of a single month – and it only takes one bad experience to leave them, and their clients, unstuck.

Remember: In some industries, such as in construction- it’s the law for your independent contractors to have liability insurance, and you can’t legally hire them without it. As a result of recent changes in data protection laws, all freelance knowledge workers will likely be required to obtain general independent contractor insurance in 2-3 years from now.

#6 Do all independent contractors need the same insurance?

The answer to this one is a big fat no. While it’s good for all independent contractors to have general insurance, you want to consider the kind of coverage they might need on top of that general policy.

This will be tightly related to the work that you’re asking them to complete. 

With a professional service like accountancy or legal advice, you’ll want to ensure that they have errors and omissions insurance, sometimes called professional liability insurance. This covers the contractor against mistakes or oversights in the work that they do, breach of contract, negligence, or failure to deliver services.

However, if you’re hiring a freelance IT technician or network specialist, you’ll likely want to make sure that they have invested in cyber-liability insurance in case of a cyberattack or a data breach of the sensitive information they were handling.

#7 What additional information can I give my freelancers about independent contractor insurance?

Another really important consideration for your freelancers will be their own business continuity and assets. 

When your workers are employees, anything from their materials, tools, and technology to the very office they work in is covered by your company. When your workers are self-employed – the buck stops with them.

Again, the kind of insurance they will need will vary depending on their work. If you’re hiring delivery drivers, you may want to suggest that they have commercial auto insurance, which will cover their vehicles even when used for personal reasons outside of work. 

More broadly, business interruption insurance could be a ‘catch-all’ that covers any disaster that stops your freelancer from working, and will usually pay out the income that they lose while they (or you) are dealing with a crisis. This can be ethically helpful for your business if you need to end a relationship with a contractor quickly.

#8 What if my freelancers work from home? Are they covered by home insurance?

Unless they have specifically extended their home insurance coverage to cover their business equipment and activities – house insurance won’t cover your contractors against their professional work. 

While you might be responsible for any accidents or damages that happen to employees when working from home, you are unlikely to be held responsible for your independent contractor at home. However, if your contractors come into the office – it can be helpful to check your worker’s compensation policy to see if they are covered against illness or injury. Coverage is usually optional for independent contractors, so you might want to encourage them to have their own policy set up. In 2019, only 24% of independent contractors purchased independent health insurance plans, leaving 76% open to risk.

Related content: Read our guide to independent contractor invoice.