In today's Freedom Friday blog and email newsletter, I want to talk about an important topic, and it's not entirely a legal topic, but I still get asked about it a lot, and that's insurance.  First of all, a disclaimer, Liberty Legal Solutions, LLC is a law firm and not an insurance agency.  If you have an insurance agent, you should ask him or her the question I am discussing today, “Does my small business need insurance for independent contractors?”

The short answer is it depends on the amount of risk you feel like taking in your small business, and the type of work involved.  If your small business is in the construction industry as either a general contractor or a subcontractor of any kind, then yes, you should get insurance for your 1099 independent contractors.  The reason is if your independent contractor is not insured, you might be held liable for poor work, bad conduct, or any accidents.  There are also may be statutory requirements for having insurance coverage, especially in the construction industry.  It is also helpful to have insurance coverage in case your small business or your independent contractor get sued.  The insurance carrier will pay lawyer fees and damages if the suit is about work performed or injuries related to the job.  It is always better to get a lawyer paid for by the insurance company than having to pay your own attorney thousands of dollars in hourly billing in defending a tortious lawsuit against your small business.

Depending on the nature of your small business, and what industry you're in, you should consider getting six (6) types of insurance for your small business:

1. General Liability Insurance

The first type of insurance you should consider is general liability insurance.  This covers injuries on the job and breaking of equipment.  This is an all-purpose product and protects both your small business and your independent contractors, too.  If your independent contractor accidentally causes an injury to someone else on the job, liability insurance might step in and pay the medical bills for the injured person.

2. Errors and Omissions Insurance

The second type of insurance you should consider is errors and omissions insurance, also known as professional liability insurance.  Errors and omissions insurance provides coverage to mistakes in a professional industry, e.g., architectural services, medical services, legal services, engineering, and others.  If you are dealing with a professional, they should have errors and omissions coverage.  If your small business is in one of the professional industries, then your small business needs this coverage, too.

3. Commercial Auto Coverage

The third type of insurance you should consider is commercial auto coverage.  If your independent contractor drives as part of the job, commercial auto coverage will protect both you and your independent contractor in case of a work-related accident. 

4. Workers' Compensation Insurance

The fourth type of insurance you should consider is workers' compensation insurance.  If you have employees (not independent contractors), this is absolutely essential, but if you have independent contractors, you need to strongly consider this, and ask your insurance agent if a workers' compensation policy will cover independent contractors working for your small business.  This type of insurance will pay for work-related injuries and lost wages, along with other benefits for the injured worker.

5. Disability Insurance

The fifth type of insurance you should consider is disability insurance.  This type of coverage is usually held by the independent contractor and not the small business for which he or she works.  Disability insurance usually pays a weekly benefit in the event the independent contractor is unable to work due to disability.

6. Performance Bond

The sixth type of insurance you should consider is a performance bond.  This is very common in the construction industry.  A performance bond guarantees the work will be completed satisfactorily, or the bond money is used to fix or complete the job.  It protects the employer or hiring entity from issues due to poor workmanship, or if the contractor cannot complete the job due to disability.  Cash performance bonds give sufficient protection by guaranteeing the project will be completed on time.  They also eliminate the risk of being personally sued and having your small business's assets seized to pay for damages.

Thinking about starting a small business?  Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth?  Please contact me at [email protected] to schedule a FREE strategy session.

For more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com/