Bob is a professional accountant who helps small- and medium-sized businesses navigate tax season and make the most of deductions and claims. Bob is good at what he does. He’s spent two decades learning the ins and outs of tax codes, and clients come back to him time and time again.
Then one year, Bob suffers a cyberattack. It’s not his fault; malicious actors exploit a zero-day vulnerability to gain access and steal his client files. Now, Bob has a problem. He’s responsible for keeping this data safe, and companies that rely on him could be at risk.
Bob’s plight is a constant worry for consultants. For the last 10 years, I’ve worked as a freelance writer for companies that provide a host of internal and protected documents for reference. If these documents were stolen or accidentally shared, it could put my business at risk.
Like Bob, I understand the value of insurance in protecting myself and my clients. In this piece, I’ll break down the basics of insurance for consultants and examine five types worth considering: professional liability, general liability, cyber liability, business owners’ policies, and property insurance.
What Is Insurance for Consultants?
Consulting insurance is a specialized type of coverage for professionals who provide advice and services. The most common type purchased by consultants is professional liability insurance, also known as errors and omissions (E&O) insurance.
Professional liability coverage safeguards consultants from allegations of negligence in the services they provide. Consider a human resources (HR) consultant who forgets to account for state-level payroll compliance when designing a new HR strategy. This isn’t malice — instead, it’s a potentially costly error. The consultant’s client takes legal action for damages, which could bankrupt the consultant’s business. Errors and omissions insurance covers the cost of any legal processes and potential payouts.
Five Essential Types of Insurance for Consultants
There are five types of insurance consultants should consider for their business:
1. Professional liability insurance (E&O)
As noted above, E&O insurance is the most common type purchased by consultants. Along with protection against legitimate claims, this insurance covers the cost of fighting disputed allegations. For example, if a client claims you didn’t provide a deliverable but you have proof to the contrary, professional liability insurance covers the cost of resolution.
2. General liability insurance
General liability insurance protects against third-party bodily injury and property damage. Put simply, it covers you in the event that a client is hurt in your office or on your property.
Here’s a simple example: You run a tax preparation business out of your home. A client trips on a cord in the office. General liability insurance means you don’t pay out of pocket.
3. Cyber liability insurance
Cyber liability insurance covers you in the event of data breaches or cyberattacks. Let’s say you use a public cloud service to securely store client data. This service experiences a data breach, and your client’s data is stolen. No matter what protections your cloud provider had (or didn’t have) in place, you are responsible for the security of client data as the authorized collector. Cyber insurance protects you against the accidental loss or malicious theft of client data.
4. Property insurance
Property insurance is useful if you have a physical office space with equipment, such as computers, printers, furnishings, and other physical assets. If your office is burglarized, damaged by negligence, or destroyed by criminal activity such as arson, property insurance helps pay for restoration and repairs.
5. Business owners’ policy (BOP)
A business owner’s policy combines general liability and property insurance in one policy, making it a good choice for businesses with physical office spaces or equipment.
Cost Factors for Consultant Insurance
Several factors influence the cost of insurance for consultants, such as:
- Claims history
- Coverage limits
- Number of employees
- Business location
- Consulting specialty
Proof of Insurance (COI)
A certificate of insurance proves that your insurance coverage is active and provides the necessary protection for clients. Many clients want to see your COI, even for small projects. For example, if you’re a legal consultant, your clients will likely want proof of cyber insurance as part of their due diligence in keeping their client data safe.
To obtain your COI, contact your provider directly and ask them to email the certification. It’s also worth asking for a physical copy to keep on hand.
How to Choose the Right Coverage
You likely want to start with the basics: professional liability insurance. No matter what type of service you provide or how you provide it, E&O insurance is a foundational coverage for independent consultants.
You will also want to strongly consider cyber insurance. With digital operations now a reality for consultants, cyber insurance is critical to protect against data theft or loss. Finally, consider general, property, and BOP insurance. If you don’t see clients in-person, you may not need these types of coverages. If you have a physical space that’s used by employees or clients, consider getting coverage.
Getting Started: Your Consultant Insurance Action Plan
If you’re a consultant, you likely need insurance. To determine the coverage you need, consider these steps:
Purchase a plan and obtain your COI. Make sure you keep policy documents close at hand in case of a claim.
Ready to get protected? Discover the coverage that fits your consulting business and get a personalized quote today.
Consider your risks. What type of services do you offer, and how do you provide them?
Determine your coverage limits. For example, if you’re handling the financial data of a multi-million-dollar company, you need more cyber coverage than if you service small businesses.
Talk to multiple providers. Most insurers now offer online quotes, letting you quickly compare costs and coverage.