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Business Insurance for Consultants: What It Is, Why You Need It, and the Best Policies To Have

Insurance
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Joey Randazzo
Joey Randazzo
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Published:
Jan 23, 2023
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Business Insurance for Consultants: What It Is, Why You Need It, and the Best Policies To Have

Consultants are needed in many different industries. It’s a big job — and not without risk. That’s why you need to protect yourself with business insurance for independent consultants.

So, what is business insurance for consultants? How much does it cost? What type is best?

Whether your area of expertise is marketing, HR, operations, or another special field, you need information about business insurance for consultants. Keep reading, because we have all the answers here.

What Is Business Insurance for Consultants?

Businesses rely on consultants for advice, and if they don’t like the outcome they may turn to legal action. That’s why insurance for a consulting business is important and necessary. It provides coverage protecting policyholders from financial strain or ruin stemming from claims of negligence or other negative situations that may arise.

A consulting business can be incredibly rewarding, but it can carry a great deal of risk. Business insurance for consulting can help with this.

Does My Consulting Business Need Insurance?

If you’re wondering, “Do I really need insurance for my consulting business?” ask yourself this — do you want to be liable for  …

  • Financial losses
  • Property damage; and even
  • Personal injury

… that may stem from your services or work environment? Of course not! So the short answer is yes, your consulting business needs insurance.

You may strive to do your best as a consultant, but we’re all human. Business insurance for consulting protects you from claims of:

  • Inaccurate advice
  • Misrepresentation
  • Negligence (such as missed deadlines or incomplete work); and
  • Errors and omissions

For instance, let’s say you’re an education consultant and you advise a school system to implement new tutoring software for struggling students. At the end of the year, those students end up with worse grades and test scores than they had before using the software. If the school system decides to sue you based on the outcomes of your advice, business insurance for consultants can protect you.

You may not want to add the expense of business insurance to your budget, but consider the cost of the …

  • Lawsuits
  • Attorney and court fees
  • Loss of assets
  • Etc.

… that you could be facing without it.

How Much Does Insurance Cost for a Consultant?

The cost of business insurance for consultants can vary widely. It depends on factors such as your:

  • Years of experience — Most insurers believe those with more experience are less likely to make a mistake, so their premiums may be lower.
  • Type of coverage — Higher limits come with higher policy costs.
  • Type of business — Some consultants work in riskier fields than others (think financial consulting vs. wedding consulting).
  • Claims history — If you haven’t previously filed insurance claims, you can usually get a better rate.

There can also be other deciding factors such as whether you are independent or have many employees, whether you own or lease your office space, and more. A good insurance agent will be able to guide you through each component and help you make the best choices for your individual situation.

What Type of Insurance Do I Need as a Consultant? 9 Types of Insurance for Consulting Businesses

There are many business insurance policy types. This can be confusing, so we’re going to lay out nine different categories and explain why they might be beneficial to you as a business consultant.

#1: General Liability Insurance

General liability insurance covers your consulting business from third-party claims related to:

  • Bodily injury
  • Property damage; and
  • Advertising injury, such as defamation or copyright infringement

General liability insurance is both affordable and useful. Since many consultants invite clients into their offices for meetings, this type of insurance would cover something like medical bills from a slip and fall in the lobby.

If you work out of your house, you may be able to tack this on to your homeowners insurance.

#2: Professional Liability Insurance

Professional liability insurance is also called errors and omission (E&O) insurance and covers claims of:

  • Negligence
  • Mistakes
  • Missed deadlines
  • Undelivered services
  • Misrepresentation
  • Overspending
  • Etc.

If your clients accuse you of causing them financial harm due to your consulting advice, professional liability insurance will help you. This type of insurance is on the cheaper end of policies, but it provides great value by covering legal fees and settlements.

#3: Cyber Liability Insurance

In today’s digital world, cyber liability insurance can be invaluable. It provides coverage against data breaches and software hacks that may expose sensitive information like clients’ financial data.

Cyber liability insurance claims may pay for things like:

  • Client notification
  • Credit monitoring services
  • PR services; or
  • Extortion demands

Cyber liability insurance can be expensive, but it’s not needed if you don’t handle your clients’ sensitive data or provide consulting services in cybersecurity or IT. If you are involved in these things, the cost is well worth it.

#4: Commercial Property Insurance

Commercial property insurance covers any damage to your office and/or its contents because of:

  • Smoke
  • Fire
  • Natural disasters; or
  • Vandalism

This type of insurance is recommended for any business and is not specific to consultants.

#5: Business Owner’s Policy (BOP)

A business owner’s policy (BOP) combines several different types of coverage into one package. It may include:

  • General liability
  • Commercial property
  • Business income, which covers losses that may occur if you are forced to temporarily close your office; and
  • Possible other coverages

Business owners’ policies are great, but they’re only available to certain insurance customers. You may qualify for a BOP if you:

  • Consult in a low-risk industry
  • Run a small office
  • Have fewer than 100 employees
  • Only need the insurance for a year or less; and
  • Have an annual revenue of less than $1 million

#6: Workers’ Compensation Insurance

Workers’ compensation insurance covers lost wages and medical bills for employees who suffer work-related injury or sickness and is required by almost every state.

It’s a relatively cheap category of insurance, but this can also vary due to how many people you employ and the risk associated with your area of consultation.

If your office has a mold problem that causes respiratory issues for an immunocompromised employee, for example, workers’ comp will pay out for their medical care and loss of income due to missed work.

#7: Fidelity Bonds

Fidelity bonds are also called employee dishonesty coverage and are useful if an employee steals from you or your client. It is often part of a larger insurance policy and can cover:

  • Embezzlement
  • Fraud
  • Theft; and
  • Unlawful data access

First-party fidelity bonds protect your company and third-party fidelity bonds protect your clients from your dishonest employees.

#8: Business Interruption Insurance

If there’s a disaster that makes it impossible to operate your consulting firm, business interruption insurance will help.

For instance, if your building floods and your employees can’t come into the office, business interruption insurance will cover the resulting lost income.

#9: Commercial Auto Insurance

If you use any vehicles as part of your consulting business — like driving your clients to dinner in your car as part of a session —  you need commercial auto insurance. 

Your personal auto insurance may offer coverage for some business use of your vehicle, so check with them before you purchase a separate policy.

3 Common Ways To Obtain Business Insurance for Consulting

There are different ways to get the insurance coverage you need. Whatever route you choose, it’s important to determine your insurance needs upfront. 

You will also want to compare providers and policies when figuring out what works best for you and your consulting business.

#1: Contact the Provider Directly

If you’re a small business with simple insurance needs, contacting a provider and buying directly from them may be a good option for you.

This means you don’t have to deal with a broker, plus you can get a quote and purchase your policy quickly.

The downside to this method is that if you want to compare prices, you’ll have to contact each insurance provider directly — which can take a lot of time. Plus, you may not get the level of personalized customer service a broker or independent agent can provide.

#2: Shop With an Online Marketplace

If you don’t want to contact each provider yourself to get the best rate, online insurance marketplaces are an easy and fast option. Just plug in the required information about your consulting business and the coverage you need and you’ll get quotes from a variety of insurers for comparison.

This can be ideal for business owners who don’t want to have to deal with sales pitches from agents.

The downside of this method is that most online marketplaces only partner with certain insurance companies, so you won’t see all the options available to you. 

#3: Use a Broker

If you’re a consultant who prefers personal service, using a broker is a great option to find your ideal insurance plan. They’ll ask you questions to help ascertain your needs and then contact multiple insurance agents to get quotes.

Since brokers have a lot of experience dealing with a variety of insurance policies, they usually know their stuff and can help you get an insurance package that will work for your business. But one downside of this is that — since they work on commission — brokers may try to sell you coverage that you don’t really need.

They may also charge a fee and don’t have any incentive to find you the lowest rates.

No matter what type of coverage you get or which method you use to obtain it, business insurance for consultants is a crucial component of your success.

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