Sometimes a project can go wrong in a big way: a website can go down at the worst possible moment, a brochure can get printed with the wrong information, or you can otherwise end up with a very unhappy client. You can do everything you can to solve the problem, but at the end of the day, if your client isn't happy, you can be facing some major trouble. Depending on the circumstances of the project and the problem, your client may be in a position to sue you or otherwise demand compensation for the problem – a financial burden that many freelancers just aren't equipped for.
Errors and Omissions Insurance
The best protection in such a situation is errors and omissions insurance. In the event of a major problem, errors and omissions insurance covers legal costs and can protect a freelancer from winding up in a situation where he or she can't cover legal expenses or damages.
Some bigger clients will require insurance as part of the contract covering specific projects. Todd Adkins, who has been operating Born to Design since 1997, recently began working with a big client who expects any contractor to carry both general liability and errors and omissions insurance. To find coverage took Todd longer than he expected:
"I worked the phones pretty well to get an agent who could come in with an affordable rate. I did find that prices for this are very high, and all over the road. The main problem I ran into was that an agent would give me a "ballpark" on where the cost would land only to come back later with a much higher rate. Early in my efforts an agent told me that I'd likely have better luck going with an independent agent rather than a larger agency because they had more options available to them. In the end, a recent contact (an independent agent) made at a networking breakfast was able to bring both the General Liability and the Errors & Omissions plans together as a package for a comparatively good rate."
Depending on your client, you may have a little room for negotiation when it comes to insurance. Because of the projects most freelancers work on, errors and omissions insurance can typically cover most of your insurance needs: while general liability does cover advertising injury and other project problems, it's focused more on protecting your business in the case of bodily or property damage. If you don't have clients in your office, general liability can be overkill.
You may also be able to negotiate the amount of coverage a client asks for, especially if you have a policy already in place. Todd's client requested $2 million in coverage, but after some discussion, they accepted $1 million.
Jeff Kleid is an insurance broker who works with freelancers, bloggers and other businesses that may not get as much help from insurance brokers focused on bigger businesses. He suggests that freelancers looking for errors and omissions insurance start with finding a broker, but points out that some can be reluctant to work with freelancers:
"If you do find a broker that actively writes E & O insurance, many will lose interest as they see very little upside that the client will grow and most freelancers don’t generate the type of revenue and would not be able to justify what has traditionally been a $1,500 — $2,500 minimum premium."
However, there are new insurance products becoming available that are geared towards freelancers and other small business owners.
Jeff says, "There is some good news though, one company, called Axis Pro (formerly known as Media Pro) has created a policy just for freelancers, with premiums ranging from $450 to about $1,500 annually, for coverage starting at $100,000 depending on if you are a freelancer, blogger or author for hire."
Approximately $500 is the starting point for insurance for most freelancers in the U.S, depending on the risk of a problem — if you are a freelance writer covering sensitive topics, for instance, you may find your premiums to be a little higher. If you're based in another country, you'll be able to find similar insurance products as well as price estimates through an insurance broker working in your area.
Do You Need Errors and Omissions Insurance?
Insurance can be an expensive choice for freelancers. In a perfect world, we could all afford it and could eliminate any worry about the potential for problems. The fact of the matter is, though, that not all freelancers are in a position to pay $500 just in case of a problem.
Freelancers working with smaller clients, on projects with limited risks, don't need errors and omissions insurance as much as their counterparts working with big clients. If you feel comfortable with the risks associated with your projects, operating without insurance may not be an issue. However, it's a good idea to talk to an insurance broker about your options before making the decision one way or the other — because each freelancer operates a little differently and takes on different projects, it isn't possible to give advice on insurance without personal knowledge of your business.
As your freelance business grows, however, it is important to revisit the question of insurance and take steps to protect your business and your finances.
Disclaimer: You should always seek independent financial advice and thoroughly read terms and conditions relating to any insurance or financial product you plan to purchase. This article is intended as a guide only.
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