If you’re a freelancer, gig worker, individual consultant or a contract worker, you’re part of one of the largest and fastest growing groups of professionals. Working independently as a contractor has a lot of benefits: freedom, better-earning prospects, and the opportunity to work in more than one industry simultaneously. These are just a few of the advantages. But have you ever spared a moment to think about the risks involved?
A study by ICRIER reveals that India is the second most vibrant market for gig workers (15 million) that contribute to 40% of the total freelance work globally. In such a scenario, with the increasing standards of professionalism and awareness about liabilities, clients who engage the services of freelancers, do not hesitate to file lawsuits against them. After all, they are investing their time, effort and trust on the freelancer.
A missed deadline, a small error or contractual breach, could lead to lawsuits against the freelancer. Let’s look at some of the risks involved in this industry.
Just like a company has third-party liabilities, individual contractors, too, have liabilities. If an independent contractor causes bodily injury or property damage to a third-party, the contractor could be made legally liable to pay for the claims made by the third-party in a court of law. Apart from that, if the work done by an individual contractor harms the reputation or image of the client, the client could file a lawsuit against the contractor.
For individual contractors, contracts are one of the most important documents and prerequisites. Professional companies avoid working with individual contractors without a contract. It is important for both parties to scrutinize each and every clause in the contract – from the deliverables, timelines to payment-related info. The wording of the contract, too, is important. Even a slight derailment from the contract could result in a lawsuit against the contractor. At such times, a contractor could face heavy expenses and settlement costs. Apart from dishonoring of the contract, if there is a data or confidentiality breach, the contractor can be sued.
Scope creep issues are among the most common risks. At times the final result delivered is way different from that agreed in the contract. This can lead to legal issues. At times, independent consultants’ work involves providing strategic services that are directly related to the profits or losses of the client. In such cases, if clients suffer financial losses due to a contractor’s advice, they could sue the contractor.
Considering the risks and dangers involved, we’ve put together this article that throws light on all the factors, risks and solutions that can be of help to individual consultants.
Advantages of having insurance plans
- Financial coverage from legal claims
Although being a contract worker has its perks, being an independent professional, such as consultants and freelancers, is not as easy as it may seem. When an individual works as an employee in a company, they get protection and coverage for a lot of risks. For example, if their office computer system breaks down and the business is interrupted, the company would cover the damages. But that’s not the case when one is working as an individual contractor. Now imagine that a freelancer is unable to deliver a client’s work on time because of this interruption. The unhappy client files a lawsuit as he incurred losses and added expenses because of this contractor. At such times, proper insurance will be able to provide coverage for third party liability.
- You can plan to protect yourself from industry-specific risks
As an individual contractor, you may be working across industries. For example, a web developer can provide services to the IT companies, E-commerce companies, architects, or even financial services companies. The contractor is thus exposed to a number of risks related to these different kinds of companies. Insurance can help protect the contractor against different kinds of risks.
- You can win new work contracts with ease
Large companies are cautious when they get into agreements with individual contractors. A lot of times they are risking data, confidential information, and the intellectual property rights of the company by hiring a freelancer. Hence, most professional companies ensure that they contract only those freelancers who have insurance in place. If a situation of a lawsuit arises, they want to be sure that the freelancer can compensate them for the damages.
- It can benefit your employees or assistants
A number of individual contractors hire assistants and employees to work with them. This makes them (contractors) liable towards their employees. Imagine an assistant comes to your office and slips and gets injured. Or what if the assistant commits an error that results in a lawsuit filed by your client? Having suitable insurance plans that protect employees can benefit them. Moreover, providing insurance coverage to employees is a factor that attracts them to work with you and can ensure they work with you for the long term.
Types of insurance that individual contractors and consultants must have
Independent contractors can reduce and overcome risks by taking preventive measures with the help of insurance. In the previous paragraphs, we looked at the benefits that having insurance can have for individual contractors. However, it is important to understand that every insurance has a limitation and a single policy cannot offer coverage against different risks. Nor does a one-size-fits-all approach work in insurance. Below, we’ve discussed the different kinds of insurance that individual contractors must consider and explore.
- Professional Indemnity Insurance
Professional Indemnity (PI) Insurance is also known as Errors & Omissions Insurance and Professional Liability Insurance. It is most helpful to those contractors that provide services. If you are a real estate agent, lawyer, doctor, web designer, IT service contractor, writer, engineer, business consultant or accountant, among others, you must definitely consider. E&O coverage protects you in the event that a client is unsatisfied with your work and sues for compensation. E&O policies typically cover legal defense costs, settlements or judgments, expert witness fees, and more.
- Commercial General Liability
Commercial General Liability (CGL) Insurance, is a liability insurance that covers third party legal claims for bodily injury or property damage. The third party could be a customer, a vendor, a stranger or anyone in the supply chain, except your employee. The CGL Insurance provides coverage for legal claims against medical expenses, attorney fees, settlement and judgement costs, and legal costs.
- Workmen Compensation Insurance
For those contractors who have employees working under them, the Workmen Compensation Insurance could come to rescue at times when their employees get injured. This insurance policy will help you cover the expenses and losses such as the remuneration of the employee during the time they aren’t able to work, medical expenses and rehabilitation costs.
- Keyman Insurance
Keyman Insurance is purchased by the individual consultants/business owners to protect their business from financial losses in the event of their death. Imagine a situation where an individual contractor has hired an assistant. The assistant is the key project handler but meets with an accident and dies. In such a situation, Keyman Insurance could prove to be beneficial to the individual contractor. This insurance is purchased by the contractor for the employee, but the benefit can be reaped by the contractor.
- Directors & Officers Insurance
Directors & Officers (D&O) Insurance is particularly useful for those contractors who own small companies and have a small team. D&O Insurance provides financial compensation in the event of a claim against the owners and directors. It pays for defense costs and financial losses resulting from a lawsuit. This insurance can be particularly helpful to individual consultants and their small teams who take important decisions.
The life of freelancers and gig workers is anything but smooth. It’s a one-person army where every small and big task is to be handled by one single individual. In such a situation, freelancers often ignore the need for insurance. At times, they assume that they might never need those insurance claims or that they are too small to face any risks. But given the seriousness of the gig economy and that large company, too, are taking gig workers seriously, it’s time to get more professional by purchasing business insurance.
This article has been written by Srinivasan Mahadevan, the CEO of PlanCover, a leading insurance broking company with specialization in SMEs insurance. He has more than two decades of multi-faceted experience in sales, consulting and management in the business insurance sector. He has a Masters in Business Administration from Osmania University.