Do Freelancers Need Their Own Insurance?
Freelancers should look at buying insurance because they have limited financial security. While they are entitled to all profits they make, they also have responsibility for all costs. Freelancer insurance is there to protect against those unexpected events which could put a freelancer out of business.
No matter how careful and conscientious a freelancer may be, they can never predict a genuine mistake or accident. Without insurance, a freelancer who is injured and is unable to work is left with no backup. A freelancer without insurance could also be stuck with hefty legal bills they cannot afford or unforeseen compensation claims to meet. The good news is that because a freelancer is usually operating on a smaller scale, their risks are lower, and so freelance insurance is the cheapest on the market.
There is no legal obligation to take out any insurance, apart from employers’ liability insurance, if the freelancer takes on a worker who legally qualifies to be covered. If you’re wondering whether any additional help you hire has to be covered by employers’ liability insurance, insurance experts NimbleFins has a handy guide explaining who is exempt.
Some freelancers may be required to hold insurance by an industry body. For example, members of the Association of Plumbing and Heating Contractors Limited (APHC) and the Electrical Contractors’ Association (ECA) must hold public liability insurance with at least £2 million cover. Plumbers in the APCS must also hold employers’ liability insurance (unless exempt) and professional indemnity insurance.
If a freelancer is unsure of the requirements to be associated with their chosen trade body, they should check with the organisation.
What insurance do freelancers need?
The type of insurance a freelancer needs depends on the type of work they do. The music industry does have some bespoke freelance insurance packages available with some specialist providers. But freelance insurance largely is a combination of insurance policies that a business of any size in their field would be typically considered, as well as some policies that may seem more prudent for a freelancer.
Insurance policies available for all businesses include employers’ liability insurance, public liability insurance, professional indemnity insurance, cyber insurance, commercial property insurance and tax investigation and legal expenses cover. These are explained in more detail below.
Other policies that a freelancer would be more likely to take out than a limited company are:
Personal accident insurance: If a freelancer has an accident and is unable to work, this insurance pays out a weekly benefit until they’re back on their feet. Some policies only cover workplace accidents, but others payout for an injury sustained anywhere.
Income protection: Pays sick pay income after a waiting period if you’re unable to work, typically up to 70% of earnings.
Critical illness cover: Much like personal accident insurance but this for if a freelancer is diagnosed with a serious illness listed on a policy, including cancer, heart attack and stroke. This is usually paid as a lump sum and is designed to pay off debt, mortgage, or changes to living circumstances.
Business interruption insurance: A guaranteed income if a qualifying disaster leaves a freelancer unable to work. For example, a fire or flood destroys their place or work or vital equipment needed.
Freelance liability insurance
Freelance liability insurance can include public liability insurance, professional indemnity insurance and employers’ liability insurance.
A freelancer does not necessarily need all these policies. But if they work in public or in people’s homes, then public liability insurance is a wise policy to consider. This protects a freelancer should a third party sustain an injury or have property damaged as a result of their work. The policy covers compensation and the cost of legal representation to defend or mitigate against allegations.
Although not every business will require public liability insurance, it is still one of the most popular policies for businesses due to the sheer number of compensation claims made by the public. In 2019/20, there were 72,000 claims recorded by the Government’s Compensation Recovery Unit. In the same year, £6.641 million was paid out. Public liability insurance would cover these payments, as well as the associated legal bills.
However, not every freelancer will be running the risk of injuring a member of the public or damaging their property. Freelancers who may wish to consider public liability insurance include Mobile hairdressers or beauty therapists, electricians, plumbers, builders, or other tradespeople who work in the home or garden, dog walkers, event planners, painter/decorators, window cleaners, tree surgeons. As mentioned above, electricians and plumbers are expected to hold public liability insurance to be members of a registered body.
Again, professional indemnity insurance is not required by all freelancers but is wise if they sell their advice, expertise, or skills. Businesses can sue a freelancer if they allege a freelancer’s mistake or negligence led to the business losing money. This could be due to putting right a wrong, or the work they did not provide the outcome promised. Like public liability insurance, professional indemnity insurance covers compensation claims and legal bills associated with defending and settling claims.
When considering whether they need this type of cover, a freelancer should ask themselves how much financial damage they could cause their client if they made a mistake and whether they could afford to pay a compensation claim themselves. Freelancers at risk of a claim of negligence include consultants, accountants, architects, medical professionals, marketing, pr and advertising professionals, social media professionals, software developers, designers, coaches, trainers, and more.
Medical professionals working for the NHS will be covered by the NHS’ own indemnity protection, according to the Nursing and Midwifery Council. Still, it is the individual’s responsibility to check appropriate cover is in place.
Employers’ liability insurance is a legal requirement if a freelancer hires a worker to take on some of their responsibilities. Freelancers largely work alone, but if the business is going well, they made need some help to lighten their load. In a lot of cases, this worker could quality for employers’ liability insurance. This is one way the Government ensures employees are protected should they become injured, ill, or die as a result of their job. However, there are a number of workers who are exempt from employers’ liability insurance. Indeed these could even apply to the freelancer themselves in the work they do for their clients.
Workers who do not qualify to be protected by employers’ liability insurance:
- Are a close family member.
- Are allowed to subcontract out their work to someone else.
- Do not have their hours or place of work set by the employer.
- Do not have income tax and national insurance deducted by the freelancer.
- Operate as a business.
- Are not based in Great Britain for 14 continuous days (or seven on an offshore location).
- Use their own equipment to carry out their work.
Other types of freelance insurance
As well as personal accident insurance, critical illness cover, business interruption insurance, employers’ liability insurance, public liability insurance and professional indemnity insurance outlined above, there are a few other types of freelance insurance available.
A brief introduction to the other insurance policies a freelancer may need are included below:
Commercial property insurance: Covering physical damage to the freelancer’s place of work, as well as contents if required. Stock can also be covered under this product, although sometimes it is an add-on. If working from home, home contents insurance may not be enough to protect a freelancer’s work property, especially stock. Suppose they keep stock, samples or flammable or hazardous material at home. In that case, the freelancer must check if this is covered by home contents insurance or if they need to take a separate business policy.
Cyber insurance: Connecting policyholders with computer experts in the event of a hack, lost data, system outages and viruses. It can also fund business interruption costs, legal and compensation claims.
Tax investigation and legal expenses insurance: If a freelancer fears they may need legal assistance and doesn’t think they could afford it, this insurance pays for the cost. It can include employment disputes, debt recovery, contract disputes, tax investigations and more.