Although insurance is an added cost for freelancers, insurance policies do serve essential purposes.
Some freelancers must purchase the policies since local, state, or federal authorities mandate them. In other situations, it’s beneficial for freelancers to incorporate the costs into their operating budgets.
For example, government entities audit corporations more often. Therefore, they must operate transparently. Corporations must ensure that they and any contractors they hire have the proper insurance in case something falls through the cracks.
Business insurance is just one policy that freelancers can purchase. Several others exist, such as self-employed insurance, which Gigly explains in more detail.
The following are five reasons freelancers should consider getting business insurance.
- Some Authorities Mandate It
Since the United States Internal Revenue Service classifies freelancers as small business owners, freelancers must think like them. Small business owners must satisfy governing regulations, such as registering their company, paying taxes, and purchasing insurance.
As states have become more litigious, small business owners must protect their companies and assets. Therefore, some local authorities mandate that business entities purchase insurance.
For example, rideshare drivers must purchase commercial vehicle insurance, even if they drive their cars. Commercial vehicle insurance covers different components than a personal policy since commercial vehicles drive more miles and more often.
Insurance helps freelancers protect their operations, even if they operate as sole proprietors.
2. Establish a Safety Net
Some states allow courts to hear frivolous lawsuits. States like Texas do not. A judge might toss out cases once they realize that it’s frivolous. However, defendants have already spent money on legal representation and related fees.
Many business policies cover these costs. Since over 50% of independent contractors operate as solopreneurs, the premiums reimburse funds they need to keep their shops running. Otherwise, the fees might put contractors in precarious financial situations.
Most professionals do not hope to become embroiled in lawsuits, and most never will. In case something goes sideways, insurance does create a financial safety net.
3. Some Clients Require It
Landing a corporate or enterprise client is a big deal for contractors. However, these clients must complete additional steps and have more at stake.
Corporations must jump through additional hoops when completing business transactions. Filing taxes requires more forms, and they must abide by additional hiring regulations since government authorities will audit their records more frequently than small business owners.
For example, some states have strict parameters that freelancers must meet. Otherwise, states might see them as employees. Thus, corporations must prove that they hired independent contractors, not employees they misclassified.
Therefore, corporations might require that freelancers meet certain requirements, such as having current business insurance policies.
4. Establish Credibility
Freelancers can earn six figures annually, and an estimated 8% fall into this income bracket. Contractors who reach this bracket must fulfill all operating requirements, such as obtaining the appropriate licenses, paying taxes, and purchasing insurance policies.
Jumping through the hoops establishes credibility.
Before 2020, some companies still had doubts about the freelancing labor sector. However, 2020 and 2021 proved that the infrastructure to support remotely working existed. Moreover, it showed that individuals would complete their work responsibly.
Even though freelancing has become more widely accepted since 2008, purchasing the appropriate policies establishes credibility, especially for solopreneurs.
5. Plan for the Future
Some freelancers will pay $500 monthly for insurance premiums. They purchase business insurance on top of others, such as:
- Commercial property
- Commercial auto
- General liability
- Cyber security
- Professional liability
Then, peripheral policies exist, including:
- Worker’s compensation
Although they become additional line items, insurance policies, including business insurance, help freelancers plan for the future.
In addition to litigious states, some fields are more litigious than others, such as legal, medical, real estate, and financial. Undergoing a trial as a defendant will cause stress. However, insurance helps pay for financial expenses that could wipe out a freelancing bank account.
Moreover, once freelancers make buying insurance a habit, they purchase other necessary policies that keep them healthy, such as health and dental.
For most freelancers, purchasing business insurance is a requirement, not a choice. In addition, they might run into important clients who also require it. Therefore, view insurance as part and parcel of freelancing instead of an expense. Then, freelancers can enjoy its benefits that help them establish credibility and protect their assets.