From project hiccups to client disputes, consultants face unique risks, some of which can easily be mitigated with the right coverage. So, what kind of insurance does a consultant need to stay protected?
8 Types of Insurance Consultants Need
Think consulting is low-risk? Think again. A simple contract slip-up, a data breach, or an unhappy client can cost you big. Here are the specific types of insurance every consultant should consider.
Professional Liability Insurance
Professional liability insurance — also known as errors and omissions (E&O) insurance — protects from claims of consultant negligence, mistakes, or failure to deliver services as promised. Even if the claim itself turns out to baseless, legal defense fees can add up quickly.
What it covers:
- Legal defense costs: Can pay for attorney fees, court expenses, and settlements if a client sues over professional mistakes or negligence.
- Inaccurate advice: Can protect from claims that your professional advice led to financial loss for a client.
- Negligence claims: Can cover accusations of carelessness or lack of due diligence in your services.
- Misrepresentation: Can protects against claims that you provided false or misleading information.
How it works:
You inadvertently provided incorrect data in a client’s campaign strategy, leading to financial losses for one of your clients. Your client sues you for professional negligence. Professional liability insurance can cover legal defense costs and any potential settlements.
General Liability Insurance
General liability insurance covers third-party claims of bodily injury, property damage, and personal and advertising injury. Often referred to as “slip-and-fall” coverage, it also extends to third-party claims involving accidental property damage, advertising mistakes, copyright infringement, and reputational harm.
What it covers:
- Bodily injury claims: Can cover medical expenses and legal fees if a third-party is injured due to your business activities.
- Property damage: Designed to pay for repair or replacement costs if you accidentally damage someone else’s property.
- Personal and advertising injury: Protects against claims of defamation, copyright infringement, or false advertising.
How it works:
While presenting at a seminar, you leave cables exposed, causing an attendee to trip and sustain injuries. This policy covers medical expenses and potential legal fees.
Workers Compensation Insurance
If you have employees, most states require you to carry workers compensation insurance. This coverage pays for medical expenses and lost wages if one of your employee gets injured on the job.
Note: Even if your team works remotely, injuries like repetitive strain, slips, or work-related stress can still occur.
What it covers:
- Medical expenses: Pays for doctor visits, hospital stays, surgeries, and rehabilitation for work-related injuries or illnesses.
- Wage replacement: Provides partial lost wages if an employee is unable to work due to a job-related injury.
- Ongoing care: Covers long-term treatment, such as physical therapy, if needed for recovery.
- Employer liability: Pays legal costs if an employee sues over a workplace injury.
- Death benefits: Provides compensation for funeral costs and survivor benefits if a workplace accident results in a fatality.
Keep in mind: Workers comp generally protects employers from lawsuits under the exclusive remedy rule, but lawsuits could still occur if an employer is found grossly negligent.
How it works:
Your employee is in a meeting with a client when they trip over an uneven carpet and sprain their ankle. The injury requires medical treatment, including physical therapy, and prevents them from working for several weeks. Workers comp can cover medical bills and a portion of their lost wages, helping them recover without financial strain.
Cyber Liability Insurance
More than 40% of small businesses experience cyberattacks each year, and consultants are particularly vulnerable due to their reliance on email, cloud-based storage, and online payment systems. If your consulting business collects or stores client data, processes transactions online or communicates via email, you could be at risk.
Cyber liability insurance protects your business from financial losses due to data breaches, cyberattacks, or accidental online leaks of confidential information.
What it can cover:
- First-party coverage covers direct losses associated with a cyber incident to your business, including:
- Forensic fees: Pays for professionals to investigate and identify the breach.
- Notification costs: Covers expenses to inform affected clients about the breach.
- Cyber extortion (ransomware): Helps pay ransom demands from cyber criminals.
- Crisis management and public relations: Funds damage control efforts to protect your reputation.
- Recovering and restoring data and systems: Covers costs of restoring lost or compromised information.
- Payment Card Industry Data Security Standard (PCI-DSS) penalties: Pays fines for failing to meet payment security standards.
- Business interruption and extra expense: Covers lost income if a cyberattack disrupts operations.
- Financial fraud: Protects against losses from cyber-related financial scams.
- Third-party coverage pays for your liability to others due to the attack, such as:
- Unintended disclosure of personal information: Covers claims if client data is accidentally exposed.
- Credit monitoring for impacted parties: Pays for identity protection services for affected clients.
- Regulatory fines and penalties: Covers government-imposed fines for data security violations.
- Settlement fees and court judgments: Pays for legal settlements if clients sue.
- Attorney fees: Covers legal defense costs for cyber-related lawsuits.
- Settlement costs: Pays for agreements made to resolve claims outside of court.
How it works:
You unknowingly click on a phishing email, allowing hackers to access your clients’ financial records. You face a lawsuit from affected clients and regulatory fines. Cyber liability insurance can cover legal costs, regulatory fines, expenses for notifying clients, restoring data, and managing the fallout.
Fidelity Bonds for Consultants
Fidelity bonds protect your clients from financial losses due to fraud on the part of one of your employees. Some clients require consulting firms to carry this coverage as part of their contract. It builds trust and can protect your reputation and your working relationships with clients.
What it covers:
- Employee theft of client funds or property: Covers your client’s losses if one of your employees steals money or valuables from them.
- Financial losses due to dishonest acts: Protects your client against fraud, forgery, or other deceptive practices on the part of your employees that result in financial harm.
How it works:
You are working on a project for a high-profile client. One of your employees secretly forges invoices and pockets the overpayments. Thanks to the fidelity bond, your client is reimbursed for the funds that were misappropriated.
Additional Insureds
Adding clients or business partners as additional insureds extends your policy coverage to them. If they’re named in a suit because of your work, your policy can protect them financially. It’s common for client, venue, landlord/lease, and other contracts to require consultants to include them as additional insureds to reduce liability risks.
What it covers:
- Legal costs: Covers the additional insured’s legal fees if they get involved in a lawsuit because of your work.
- Liability protection: Protects the additional insured if they’re sued because of your actions.
- Contract compliance: Ensures you meet contract requirements that require third parties to be added as additional insureds.
How it works:
You rent a venue for a leadership workshop. A participant trips over a power cable and sues you and the venue. Since the venue is listed as an additional insured on your general liability policy, your insurance covers the venue’s legal defense costs, saving you and them from paying out of pocket.
Tools & Equipment Insurance for Consultants
If you use expensive technology, supplies, or specialized equipment, tools & equipment insurance (also known as inland marine insurance) protects your business assets from theft or damage.
What it covers:
- Theft of business equipment, supplies, or tools: Provides compensation if your supplies, tools, or equipment are stolen so you can quickly get back to work.
- Accidental damage to work gear: Can cover repairs or replacements if your consulting tools, equipment, supplies, etc., are accidentally damaged.
How it works:
If you accidentally drop your laptop during a client meeting and crack the screen, this insurance can cover the repair or replacement costs.
Commercial Auto Insurance for Consultants
If you drive for work-related purposes, personal auto insurance may not cover business-related accidents. Commercial auto insurance provides coverage for work-related travel.
What it covers:
- Auto liability bodily injury and property damage: Can cover bodily injury and property damage if you or an employee cause an accident while driving a business vehicle.
- Uninsured / underinsured motorist coverage: Protects you if you’re involved in an accident with someone who doesn’t have insurance, or whose insurance is insufficient to cover the costs of the accident.
- Hired auto coverage: Can cover rented or leased vehicles used for business purposes.
- Employer’s non-ownership liability: Protects your business if an employee causes an accident while using their personal vehicle for work-related tasks.
- Roadside assistance and rental reimbursement (optional add-ons): Provides coverage for roadside assistance (e.g., flat tire, lockout, or towing) and rental car reimbursement if your vehicle is temporarily out of service after an accident.
How it works:
A marketing consultant rear-ends a car while driving to a client meeting. Because she was using her car for work, her personal auto insurance didn’t cover the accident. Thankfully, her commercial auto insurance covers the other driver’s medical bills and car repairs, her own medical expenses, and a rental car while hers is being fixed.
What Is Liability Insurance for Consultants?
Liability insurance protects consultants from legal claims related to their business operations. Professional liability covers service-related disputes, while general liability covers third-party physical accidents and property damage.
How Much Does Consultant Insurance Cost?
Insurance Canopy offers policies starting at $21 per month, but consultants can save up to 14% by choosing annual payments. Consultant insurance costs vary depending on factors such as the type of consulting services offered, coverage limits, and claims history.
Who Needs Consultant Insurance?
Any consultant who provides advice, services, or recommendations should consider insurance to protect against potential risks. Insurance Canopy offers consultant insurance tailored to the common risks and specific requirements of:
Consultant Insurance Requirements
While there are no specific legal regulations requiring insurance for consultants, most clients prefer consultants to carry at least:
- A general liability policy with at least a $1 million limit is often expected by clients for third-party bodily injury or property damage coverage
- A professional liability policy with a $1 million limit protects against errors or omissions that could financially harm clients
- A workers compensation policy (required in most states for businesses with employees)
What Are Common Claims in the Consulting Industry?
Consultants are adept at problem-solving, but even the best can face unexpected challenges. From simple errors to unforeseen issues, common consulting claims like these leave your business vulnerable:
- Errors and omissions claims
Mistakes in advice or work are among the most common claims. These could range from minor oversights to substantial misjudgments that lead to client losses. - Intellectual property (IP) disputes
Disagreements over who owns or can use the work produced during a project can quickly escalate into legal battles. Claims can arise if you use similar materials for multiple clients or unintentionally breach an IP agreement. - Failure to meet client expectations
This claim occurs when a client feels that the work you’ve provided does not meet the agreed-upon terms or business objectives, even if the work was done correctly. This could be a result of misunderstanding or miscommunication, but the client may still decide to pursue legal action. - Employee theft or fraud
Consultants who hire staff or work with contractors may face claims of employee theft or fraud. This could include misappropriation of funds or stealing client property or money. - Property damage
Accidents can happen during a client meeting, and when they do, you may be held responsible if your actions cause damage to your client’s property (third-party property). - Breach of confidentiality
If you accidentally share confidential client information, you could face lawsuits or contractual penalties.
How to Apply for Consultant Insurance
Applying for consultant insurance is quick and easy. Simply click the link below, fill out a short form, and you’ll receive an instant quote tailored to your business needs. It’s that easy to get the coverage you need to protect your consulting business!
Questions About Consultant Liability Insurance
How do I protect myself as a consultant?
Invest in the right types of liability insurance, such as professional liability, general liability, and cyber liability. Having a well-crafted contract with clients, maintaining clear communication, and keeping your skills up-to-date are also key factors in minimizing risk.
How much does a $1,000,000 liability insurance policy cost?
A $1,000,000 liability insurance policy starts at just $21 per month with Insurance Canopy. This includes both general and professional liability coverage, with a limit of $1,000,000 for each claim. The price may vary based on your business size and needs.
Are subcontractors or part-time consultants covered under my policy?
Subcontractors and part-time consultants are not covered under your policy. They’ll need their own separate coverage to be fully protected. It’s important to make sure anyone working with you has the right insurance in place.
What is the process for filing a claim?
Filing a claim is simple with Insurance Canopy:
- Log in to your dashboard.
- Go to “Manage Policies.”
- Click “File a Claim” and provide your details.
A claims adjuster will reach out to guide you through the process. Our support team is also available if you need help.
Will liability insurance cover disputes related to intellectual property or non-compete clauses?
Liability insurance may cover intellectual property disputes, but only in specific cases. For example, professional liability insurance covers copyright infringement related to professional services, such as using copyrighted content in a report.
However, trademark and patent infringement are typically not covered under professional or general liability. Non-compete disputes generally fall under employment practices liability insurance (EPLI). Always review your policy with your insurer to understand exactly what is covered in these cases.
Do I need a separate policy for working on-site at a client’s office?
No, you don’t need a separate policy for working on-site at a client’s office. Your general liability policy typically covers you for on-site work, but it’s important to review your policy to ensure you’re fully covered.
Can liability insurance help if I face a cyberattack or data breach while working with client information?
Yes, cyber liability insurance covers you in the event of a cyberattack or data breach involving client information. It helps pay for legal fees, client notifications, data restoration, and public relations costs.
Protect Your Consulting Business With Insurance Canopy
No one can predict the future, but with the right insurance coverage, you can ensure your consulting business is prepared for whatever comes your way. From legal issues to unforeseen accidents, being proactive today means less stress tomorrow. Get covered today!
