Business Insurance for Consultants: What It Is & How Much It Costs

Whether you’re an education consultant, wedding consultant, or any other kind of business consultant, you will likely need professional liability insurance and other types of business insurance to cover your risks adequately. In fact, as long as you provide advice or services for a living, you need business consultant insurance to protect you from legal actions, property damage, injuries and other risks that can cause financial losses.

Consultants who are sole proprietors could also be personally responsible for damages if they don’t have insurance.

No matter your specialty, all business consultants share a range of risks along with many rewards. That is why you need to consider small business insurance coverage to help keep you protected.

Business insurance: An overview

Business insurance, also known as commercial insurance, protects businesses from losses due to unexpected events during normal business operations. This includes lawsuits, natural disasters, or accidents.

It is a contract between the business owner and the insurance company, where the insurance company agrees to compensate the business for covered losses in exchange for premium payments.

There are many types of commercial insurance for businesses, including coverage for property damage, legal liability, and employee-related risks, among others. Companies evaluate their commercial insurance needs based on potential risks, which can vary depending on the type of business and its environment.

Business insurance works by transferring the financial risks faced by a business to an insurance company.

The business owner pays regular premiums to the insurance company based on the coverage and policy terms. In return, the insurance company agrees to provide financial compensation or coverage for specific events or losses outlined in the policy.

When a covered event occurs, such as property damage, theft, or a liability claim, the business owner files a claim with the insurance company. The insurance company assesses the claim and, if approved, provides the agreed-upon compensation or coverage as per the policy terms.

Business insurance operates on the principle of spreading the risk among a large number of policyholders. This allows each business to pay a relatively small premium in exchange for protection against potentially significant losses.

Business insurance policies for consultants

The following are types of business insurance coverages that you should get if you work as a consultant:

General liability insurance

General liability insurance is one of the most important insurance policies for a consulting company. It covers your business in the event of a third-party liability claim related to:

Client bodily injury
Client property damage
Advertising injuries, like copyright infringement or defamation

Consultants regularly meet with clients in their own offices as well as at their clients’ businesses – which puts them at greater risk for lawsuits over accidental injury or property damage.

If your consulting business is sued, your general liability insurance policy will pay for your legal defense, a settlement with the other party, or any court-ordered judgments to cover a loss.

Professional liability (Errors & omissions insurance)

Any business that offers professional services should consider a professional liability policy. Businesses like consulting firms are at greater risk of being accused of a costly mistake, oversight, or negligence. Even if you’re not at fault, E&O coverage can protect you.

Some common examples of professional liability insurance claims include:

Work mistakes
Overspending
Undelivered services
Missed deadlines
Claims of negligence

An E&O insurance policy is an important part of risk management for consultants. If your business gets sued by a client, this coverage will pay for your lawyer fees, court costs, and any settlements or judgments.

As a consultant, one of your main jobs is to make things work better. However, helping a company improve can be a monumental job. Things can—and do—go wrong.

For example, IT consultants, during their task of making software recommendations or installing entire systems, can accidentally leave a client’s data exposed. A market analyst can err in modeling financial projections, resulting in lost revenue for the client. An HR consultant can miss regulation compliance.

Whether someone accuses you of a straight-up mistake, failing to deliver services, or being negligent in your duties, Professional Liability Insurance (E&O for short) provides protection for consultancies that are accused of errors, failures to deliver, or professional negligence.

Employment Practices Liability Insurance (EPLI)

Consultancies need EPLI because it protects the company from employee lawsuits stemming from claims of wrongful treatment, such as harassment, discrimination, and retaliation, which can be time-consuming and costly. Not only that, they can have a negative impact on your employees—which could result in a poor work environment.

Small businesses with employees often benefit from employment practices liability insurance. This insurance type protects you if an employee files a claim against you for wrongful discipline or termination, sexual harassment, discrimination, negligent evaluation, breach of employment contract, mismanagement of employee benefits, or wrongful infliction of emotional distress.

Some insurers offer EPLI as stand-alone coverage, whereas others offer it as an endorsement to their BOP. Your policy’s terms and conditions will depend on the coverage you choose. Your business type, number of employees, and various risk factors all play a part in the cost of EPLI.

Business owner’s policy

A business owner’s policy (BOP) is a bundle that includes two separate insurance policies:

General liability insurance
Commercial property insurance

While general liability insurance protects against third-party liability lawsuits, commercial property insurance pays to repair or replace damaged and stolen business property. It covers physical office spaces and storefronts, as well as equipment, inventory, and electronics. However, not all consulting businesses will qualify for a BOP.

This policy is generally available to businesses that:

Have fewer than 100 employees
Have a small office or workplace
Make less than $1 million in annual revenue
Operate in a low-risk industry
Need less than one year of business interruption insurance

If you’re thinking about getting a BOP for your consulting firm, speak to an insurance agent and find out if you qualify.

Directors & Officers Insurance (D&O)

D&O protects your consultancy’s executives from any lawsuits in which they might be held personally liable. It is important to have this kind of coverage because company leaders need to have a certain amount of freedom to make decisions about the company based on multiple, sometimes intricate, factors.

Leaders’ decisions can have a wide-ranging impact on everyone from the office intern to external clients. If there are any unintended consequences stemming from these high-level decisions, lawsuits could result—and they could personally name the leadership team.

Cyber liability Insurance

Cyber protects you against the costs of a data breach or hack by covering expenses related to the breach, such as notifying customers, monitoring accounts, legal costs, and other fees. And while it is a must for IT consultants to have, it is also a good idea for anyone who deals with sensitive digital information to have it.

First-party cyber liability insurance covers data breaches and other cyber incidents that affect your business’s systems or network. It pays for expenses such as:

Notifying clients of the breach
Credit monitoring services for affected clients
Cyber extortion demands
Public relations and reputation management services

Third-party cyber liability insurance legally protects your business if your client suffers a breach and files suit against you. It will cover costs such as:

Attorney fees
Court costs
Settlements or judgments

Consultants that handle sensitive data, or advise clients on IT systems or cybersecurity, are most in need of this coverage.

Workers’ compensation insurance

Workers’ compensation insurance provides coverage for employees who suffer work-related injuries or illnesses. It covers medical expenses, disability benefits, and lost wages for employees who are injured or become ill while performing their job duties.

Workers’ compensation insurance is typically required by law and helps protect businesses from potential lawsuits by employees seeking compensation for work-related injuries or illnesses. If an employee accepts the benefits of workers’ comp, they relinquish their ability to sue your company for the illness or injury.

Types of insurance under this include:

Life insurance

You and any other members of your business can acquire a life insurance policy. This is similar to key person insurance, providing a beneficiary with financial assistance in the event of your death. Having life insurance in place can give you peace of mind that your death will not burden your family or business partners financially.

Disability income insurance

Disability insurance is similar to workers’ comp in that it temporarily covers an employee’s lost wages if they are unable to work because of a disability. However, disability insurance will cover injuries or illnesses that occurred on or off the job, whereas workers’ comp only covers work-related issues.

This type of insurance is also sometimes required by law.

Key person insurance

When founders die, businesses often have a challenging time continuing operations. It is essential for entrepreneurs to create a business continuity plan so the company can still thrive if the worst happens.

Key person insurance, also known as key man insurance or key woman insurance, helps replace lost revenue due to the death of a key executive of your business. Your business pays the premium while the key person is alive and then collects a death benefit after their passing.

These benefits can be essential to continuing the operation of your business or finding someone to fill their role.

Fidelity bond

Fidelity bonds offer protection if your employee steals from you or your client. There are two types of fidelity bonds: first-party and third party.

First-party fidelity bonds protect your consulting firm from the actions of dishonest employees. This bond will cover expenses related to:

An employee who steals or embezzles money from your company
An employee who commits fraud against your company
An employee who commits forgery that affects your company

Third-party fidelity bonds protect your clients if one of your employees commits a crime against their business. It will cover the fallout related to:

An employee who steals from one of your clients
An employee who commits fraud against one of your clients
An employee who commits forgery against one of your clients

Fidelity bond provides coverage against:

Theft
Fraud
Embezzlement
Unlawful data access

Cost of business insurance for consultants

This varies according to the policies, some of which are listed below according to Insureon:

General liability insurance: The average cost of general liability insurance for a consulting business is $350 per year, which breaks down to less than $30 per month.
Professional liability insurance: The average cost of professional liability insurance for a consulting business is $650 per year or about $55 per month.
BOP: Purchasing a business owner’s policy typically costs less than buying general liability and commercial property insurance separately. The average cost of a BOP for a consulting business is $500 per year, which is roughly $40 per month.
Workers’ Comp: The average cost of workers’ comp insurance for a consulting company is $500 annually or about $40 per month. However, your premium depends on factors like the number of employees you have and the amount of risk your employees face on the job.
Cyber liability insurance: This can be expensive. The average premium is $1,675 per year or roughly $140 per month. But keep in mind that your rate will depend on a number of factors, such as the amount of sensitive information your firm handles and the type of work you do.
Fidelity bond: The cost of fidelity bonds depends on a variety of factors, but primarily the size of the bond. The average annual cost of a fidelity bond for a small business is $1,055, or $88 per month.

How to choose the best business insurance policy for consultants

Here are five steps to help you understand the kinds of business insurance that consultants should consider and how to find the right coverage for you:

Evaluate the kind of risks your business faces

Before you subscribe for business consultant insurance, think about the risks you face. That can help you figure out your coverage needs. Here are some examples of specific risks that business consultants may face:

Lawsuits accusing you of giving bad advice. Your legal expenses alone could be thousands of dollars, even if the client drops the claim against you.
Contract disputes over missed deadlines or incomplete work.
Lost or stolen laptops that result in data breaches or lost records.
Fire or damage to your office.

What lawsuits, accidents, or natural disasters might affect your business? Factors such as the size of your business, the nature of your work, where your office is, whether you have employees, and what kind of assets you have will affect how insurers evaluate your risks.

Determine what policies and coverage amounts you need

There are several types of business insurance for business consulting, and these policies typically cover different risks. Determining which policies and coverages are best for you will help you choose the correct insurance for your business.

You may also be able to bundle multiple types of insurance into a business owner’s policy. BOPs usually consist of general liability, commercial property and business interruption insurance, but can be customized to meet your business’s needs.

Decide how you want to shop

You have a few options when it comes to getting the right business consultant insurance. These include:

Using an online marketplace

Insurance marketplaces can speed up the shopping process. First, you give them information about your consulting business and the coverage you’re looking for. Then you get quotes from different insurers and finally, you compare the quotes to find the best deal.

Pros:

You handle the buying process on your own without having to contact each insurer.
You don’t necessarily have to talk to a human if you don’t want to.

Cons:

Marketplaces partner with specific insurers, so you get quotes only from those partner insurers.
Marketplaces don’t underwrite insurance policies, and you might not be able to manage claims or other issues through their systems. The communication between you, the marketplace, and the provider isn’t always seamless.

Contacting providers directly

You can buy business consultant insurance straight from an insurer. If you have simple policy needs and an idea of what you’re looking for, this can be an easy approach. You’ll have to contact companies one by one to get quotes, though.

Pros:

Can get a quote and buy a policy quickly.
You don’t need to deal with a broker.

Cons:

Contacting multiple providers for quotes may be time-consuming, especially if they don’t provide the same coverage.
May not get the same level of help as you would from a broker or independent agent.

Use a broker

An insurance broker can offer personalized assistance. First, you’ll discuss your needs, and then the broker gets multiple quotes for you from different insurers.

Pros:

Can help determine what coverage you need.
Work directly with a human for a personalized process.
Saves time by not having to contact providers yourself.

Cons:

Because brokers typically work on commission, they might try to sell you things you don’t need.
Not obligated to find the lowest rates for your policies.
Some brokers charge fees.
Using a broker will likely take longer compared to an online marketplace or directly contacting providers.

Compare the providers

Getting multiple quotes from different providers allows you to find the best coverage for your consulting business. When comparing providers, consider things such as:

Policy coverage: Find out exactly what the policy does and does not cover.
Limits of liability: Understand how much of a loss the insurer will cover. Larger or riskier businesses may need a higher limit.
Price: Know how much the policy will cost and what the deductible is. Understand whether the coverage and liability limits are the same for the policies you’re comparing.
Reviews. The National Association of Insurance Commissioners website shows how many complaints people have filed against a company. Also, read ratings and reviews of each provider before purchasing a policy.

Business Insurance for Consultants: In conclusion

Running your own business can be incredibly gratifying—and lucrative. But figuring out your business strategy, pricing, obtaining clients, marketing yourself, hiring people, and all of the other responsibilities consultants take on can be tough.

Hence, protecting yourself, your business, your clients, your partners, your employees, and all of your equipment and ideas with business insurance gives you the freedom to do your best work without worrying about defending legal challenges.

Business Insurance for Consultants: What It Is & How Much It Costs

Business insurance: An overview