Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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business insurance for consultants

Insurance companies that offer traditional business insurance are not always willing to cover consultants against loss of income or risk of litigation.

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When a consultant is just starting out, finding professional liability insurance might be very difficult.

Since the consultant’s income is the basis for certain aspects of the insurance coverage, the risk of loss is too high for many insurance companies to agree to insure the new consultant.

Once a track record of success and steady income has been established, insurers are more willing to underwrite the appropriate policies to cover a consultant’s practice.

Business Owner’s Policy

Most business owner’s insurance policies are designed to bundle property, automobile and liability policies into a manageable group under one insurance company. If the policy offered contains an errors and omissions insurance  component, the consultant would benefit from the discounts offered.

Consultants must be aware of the unique type of insurance that is required to protect against allegations of providing incomplete or inaccurate advice to a client. While a business owner’s policy may cover a traditional business in other sectors, consulting requires special attention to include the right coverage components to protect against loss.

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Errors and Omissions Coverage

Professional liability insurance is meant to protect independent consultants from lawsuits that allege a poor result occurred based on the quality of advice provided. Every insurance company that offers E&O insurance evaluates the cost of insuring against certain risks and then prices the policy coverage accordingly.

Policy language – The documentation included with the policy must be scrutinized to determine the exact coverage provided. Specific definitions of “wrongful act” will affect the coverage provided. The description of each exclusion must be understood.

Wrongful act – Professional liability insurance protects independent consultants from accusations related to incorrect advice or an omission that costs the client substantial money. This type of policy does not cover bodily

injury or property damage.

Defense costs – Attorney fees incurred in the defense against allegations of a wrongful act are paid under the policy as part of the maximum payment amount. If the policy has a one million dollar limit, the entire claim would have to be lower than the limit.

Claims made coverage – These types of policies pay for claims while the policy is in force. Many lawsuits are filed years later, so allowing the policy to lapse could jeopardize protection from loss.

Deductibles – Also called retentions, deductibles on professional liability insurance policies are similar to other coverage where the insured covers a certain amount of the claim prior to the insurance company paying the claim. Carrying a deductible of $5,000 to $10,000 will lower the annual premium.

Automobile Coverage

Most consultants are adequately covered under a personal automobile insurance policy, but the insurance agent should be notified that the vehicle is used to drive to client locations. Each policy will be different, and additional liability coverage, a minimum of $300,000, should be purchased. Liability coverage is necessary to protect against damage that occurs to the property of others.

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Disability Coverage

A young professional is more likely to encounter a period of disability when work is not possible than he is to die. Loss of income can be avoided with the appropriate disability policy, and each company will offer various elements of disability that will determine the annual premium.

Limited selection – Some insurers will avoid freelancers and consultants because of their inconsistent income histories. The perception is that no one is there to oversee the work, so a long track record of consistent income might be a requirement to purchase disability insurance.

Coverage amount – Insurance companies will offer to replace 60 percent of the annual income based on the income history. There are insurance companies that will offer even less when the income fluctuates or the consultant is based out of a home office.

Waiting period – One way to reduce the annual premium is to agree to wait a longer period after becoming disabled to begin to collect the benefit. Various terms are offered in each policy, including: 30, 60, 90, 120 and 365 days.

Own occupation – Agreeing to a broad definition of disability is less expensive than being covered if no work at all can be performed. Losing the ability to perform a specific occupation would carry a higher probability of occurrence. If the insurance company must pay if the consultant is unable participate in consulting activities even though other jobs are possible, the premium will be higher.

Length of coverage period – Policies can be written to pay for 1, 2 or even 5 years after the insured becomes disabled. A longer payout period results in a higher annual premium.

Premiums – Certain insurance policies cannot be cancelled unless the premiums are no longer paid. Annual premiums can stay the same throughout the insured’s life, so research must be conducted to find the companies that offer this option. People who have medical conditions, take medications or are overweight will pay higher premiums.

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Life Insurance

Consultants earn a generous living, and the loss of that income could be devastating to the people who depend on the monthly earnings. Even though a consultant role is not considered a high-risk occupation unexpected events can result in death. Life insurance should provide a death benefit large enough to cover three to five years of income. Debt payments and the outstanding mortgage must be included in the amount of coverage in the policy. Term life insurance is affordable and will provide a higher death benefit than whole life or universal coverage for a comparable annual premium.

Final Decision

One of the most important aspects of purchasing insurance is a complete understanding of the risks that will be encountered. Specific questions must be asked of an experienced insurance agent that can explain the coverage included in each policy. Every line of the fine print must be evaluated for the exclusions that will prevent payment of a claim. Bundling of policies should happen after the coverage is defined and exclusions have been measured.

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