What types of businesses benefit from general liability?

The following business categories frequently purchase general liability insurance: Small businesses/shops Landscaping businesses IT consultants Real estate agents Consultants Marketing companies Cleaning services Independent contractors

independent contractor insurance Archives

What is General Liability Insurance?
What Does General Liability Cover?
The Benefits of General Liability Coverage for Small Businesses
The Cost of General Liability for Small Businesses
FAQs
Why Your Business Should Have General Liability Coverage
Get General Liability Insurance with EZ.Insure!

What is General Liability Insurance?

General liability insurance is important to have because it covers a wide range of common business hazards including, customer injury, customer property damage, and advertising injury. Additionally, general liability coverage is usually needed in order to qualify for a lease, loan, or to satisfy the terms of certain contracts. When you sign a commercial lease, for instance, a landlord can request to see a copy of your general liability insurance certificate.

What Does General Liability Cover?

General liability insurance covers common liability claims made by third parties (people outside your business). If someone sues your business for physical harm, property damage, or advertising injury, this type of commercial insurance policy will pay for the defense costs. This includes everything from hiring a lawyer to paying for court-ordered judgements and settlements. Your commercial general liability (CGL) policy specifically offers protection for:

Third-party bodily injury – General liability insurance can assist in covering medical costs if a customer is injured in an accident at your place of business. If a customer files a lawsuit because of their injury, your policy will also pay your legal fees.
Third-party property damage – A general liability insurance policy will generally provide financial coverage in the event that your business or one of your employees unintentionally destroys or damages someone else’s property.
Product liability – Not all consumer or property damage takes place inside of a place of business. A company that produces, sells, or distributes goods may be held liable for any damage their products cause. The damage could be to people or property. Product liability insurance is a common feature of commercial general liability (CGL) policies, and aids in covering legal fees and other financial damages brought on by defective goods, incorrectly labeled products that cause harm to consumers, and other product risks.
Personal and advertising injuries – General liability insurance can assist in covering the costs of your legal defense, as well as any settlement or judgment that may be reached, in the event that you or your employee is sued for slander, libel, or copyright infringement.

What Doesn’t General Liability Cover?

On the other hand, there are several things a general liability policy won’t cover, so you will need to purchase other insurance policies to fully cover your business. The list of things that general liability will not cover includes:

Professional errors – Legal actions arising from professional errors, such as unfulfilled services and missed deadlines, aren’t covered by general liability, but should be covered by professional liability insurance, aka errors and omissions insurance (E&O).
Employee injuries – When an employee is hurt at work, their medical bills and disability payments are covered by workers’ compensation insurance, not general liability. In most states, any business with employees is required to have workers’ comp. For more information on workers’ compensation insurance, check out our workers’ compensation state-by-state pages.
Lost or damaged property – General liability will not cover lost, stolen, or damaged property, but you can bundle general liability with commercial property insurance in a business owner’s policy (BOP) and get coverage for the cost of replacing company property. Commercial property insurance also covers damage to commercial property caused by a fire or specific weather conditions.
Employee discrimination lawsuits – Employee claims of harassment, discrimination, and wrongful termination will not be covered by general liability but should be covered by employment practices liability insurance (EPLI), which also pays court costs.
Company vehicles – Business use is almost always excluded from personal auto insurance policies. The majority of states mandate that commercial auto insurance be carried on any vehicles owned by businesses.
Liquor Liability – Legal expenses resulting from situations involving customers who drank at your establishment are covered by liquor liability insurance. This can include reckless driving, physical violence, and vandalism. Businesses that serve alcohol must have this policy. You can either buy it alone or combine it with your general liability policy.

The Benefits of General Liability Coverage for Small Businesses

The majority of businesses need this insurance, particularly if they rent or own office or commercial space. And even if that doesn’t apply to you, small businesses that interact directly with clients and consumers will also benefit from general liability insurance, since this type of policy can keep your business alive if you’re sued by a client or competitor.

And it’s not just small business owners who should consider general liability insurance: independent contractors also benefit from general liability coverage. Independent contractors may be held legally responsible for customer accidents, customer property damage, or advertising injuries, just like any other small business owner, even if they don’t have a physical site or expensive equipment that would require a full business owner’s policy with commercial property insurance.

If you’re an independent contractor, you can also ask your clients to add you to their general liability policies as an additional insured if you don’t want to buy your own general liability coverage. As long as you continue to work for the client who purchased your insurance, you are covered. Remember that if your clients add you to their general liability policies, they may pay a higher insurance premium, and that your insurance coverage will terminate when the contract expires.

How Much Does General Liability Cost for Small Businesses?

According to a recent Hiscox survey, the average monthly cost of a commercial general liability policy is $30. According to the report, only 1% of business owners pay more than $100 each month. And 95% pay less than $50. The cost generally varies based on five factors:

Policy terms – Your general liability insurance premium is impacted by the policy’s coverage limits, deductibles, and other specifics.
Your expenses – The higher your operating expenses, the higher your premium.
Building size – Larger structures increase the likelihood of accidents occurring. Therefore, you might pay more if your business is located in a bigger building with higher foot traffic.
Location – Businesses that are located in high-crime areas may have to pay more for liability insurance.
Claims history – If you’ve previously made general liability claims, your premiums can go up. The more claims you’ve made, the higher your premiums.

Frequently Asked Questions

Does the law require small businesses to have general liability insurance?

Generally speaking, no, but particular businesses, including those in the cannabis and construction industries, may be subject to state mandates. You might also be required to have this type of insurance in order to apply for a professional license in your state, depending on the nature of your business. But it’s important to note that, although commercial general liability (CGL) insurance isn’t normally required by law, your landlord, mortgage lender, business partners, or clients may nonetheless require it.

An ACORD certificate of insurance may be requested by a landlord or client to verify your company’s general liability insurance coverage. This document attests to your company’s capacity to manage any claims for property damage or personal harm. This certificate most importantly gives your property manager, bank, and clients peace of mind that they won’t be forced to foot the bill for a lawsuit against your business.

How much coverage do I need?

You’ll need to make sure your general liability coverage satisfies the necessary policy limits if you need to comply with the conditions of a contract or lease. In any case, you should aim for a level of coverage that corresponds to your company’s needs. Essentially, if you want to be sure that your coverage will cover legal expenses if you are sued. To evaluate your exposures and risk of financial loss, take into account the size of your business, the number of employees, and its business processes.

To give you a better idea of specific figures, most businesses choose a policy limitation of $1 million per incident and $2 million total. This means that the policy will pay up to $1 million to cover a single claim, with a lifetime (usually annual) limit of $2 million. With commercial umbrella insurance, you can expand your general liability insurance coverage if your company faces significant risks. And with umbrella insurance, your maximum policy limit is higher, allowing your insurance carrier to cover more expensive claims. With all that being said, you also need to make sure you can easily afford the deductible for your policy. In an emergency, your insurance won’t kick in to pay for your liability claim if you can’t afford to meet your deductible.

What differentiates general liability insurance from professional liability insurance?

Customer injuries, customer property damage, and advertising injuries are all covered by general liability. Disputes over the quality of professional services are covered by professional liability insurance. Almost all businesses require general liability insurance. But those that offer professional services require additional security against errors and dissatisfied customers. This includes professionals like accountants, attorneys, consultants, and insurance agents. All of which who can avoid costly lawsuits relating to the quality of their work thanks to this professional liability insurance.

For certain professions, general liability doesn’t cover libel, slander, and other advertising-related injuries. This includes those in the media and advertising. Instead, these businesses need professional liability insurance, specifically media liability insurance.

What types of businesses benefit from general liability?

The following business categories frequently purchase general liability insurance:

- Small businesses/shops
- Landscaping businesses
- IT consultants
- Real estate agents
- Consultants
- Marketing companies
- Cleaning services
- Independent contractors

Why Your Business Should Have General Liability Coverage

Without general liability insurance, dealing with judgements, settlements, and legal costs can be exceedingly expensive and can bring a company to its knees. Consider this: just an hour with a lawyer can cost more than $100. Additionally, court costs could approach $75,000 if the case goes to trial. But you might still have to shell out a few thousand dollars even if the judge dismissed the case. Your business runs the risk of going bankrupt if you don’t have general liability insurance. Additionally, if you don’t have general liability insurance, you can lose clients. Since they won’t do business with you without the proper protections.

Get General Liability Insurance with EZ.Insure!

Working with an EZ agent is the best way to buy your general liability policy. Our service focuses on each customer and creates a supportive environment throughout the shopping experience. Along with our personalized service, we provide immediate results. You will see your agent’s info, as well as your free quotes based on your needs, as soon as you submit a form. We want to help you make the best decision and maximize your savings. There is no hassle, no obligation to buy, and no more headaches, and it’s all completely free. To get started simply enter your ZIP code below or call one of our agents today at (855)-694-0047.

If you’re a professional who provides a service to clients, like an accountant, attorney, or doctor, you’ll need professional liability insurance. This type of policy protects you from client allegations of negligence and other types of wrongdoing. Your general liability insurance policy does not provide protections against claims resulting from carelessness, malpractice, mistakes, or misrepresentation, so for professionals in fields like yours, this kind of insurance is a must.

How Professional Liability Works
What Does Professional Liability Cover?
What Isn’t Covered?
The Cost of Professional Liability Insurance
Ways to Save on Professional Liability Insurance
How to Avoid a Professional Liability Claim
FAQS
How to Find Professional Liability Insurance

How Professional Liability Works

Professional liability insurance (PLI) can be called different things, depending on the profession it’s being used for. For example, if you’re in the medical field, you will purchase “medical malpractice insurance,” or if you’re a real estate agent or accountant, you will need “errors and omissions,” or E&O. PLI is a specialty policy and is usually not included in homeowners’, in-home business, or business owner’s policies.

Most policies are “claims-made” policies, meaning that they will only cover claims if they are made both while your policy is active and if the incident occurred while the policy is active. While you may also find “occurrence” policies, which offer coverage for an incident that happened during the time your policy was active even if coverage has lapsed when the claim itself is made, these types of policies are difficult to find.

What Does Professional Liability Cover?

PLI financially protects your business from legal claims and lawsuits brought against you, whether those claims are valid or not. Both frivolous and substantiated lawsuits may be covered by your insurance. This type of policy can protect businesses against the following kinds of claims:

Negligence or failure to meet standards – If you or one of your employees delivers subpar services, you could be at risk for a lawsuit. For example, say you are a consultant and you accidentally give your client incorrect advice that they later end up being sued or losing money over. They could then in turn sue you for giving them bad advice because they paid you to have the correct information.
Missed deadlines – If you miss a deadline, your client can make a claim against you for not fulfilling your contract with them. For example, if you work in cyber security, and you tell your client their business will be protected by a certain date. But for some reason the project takes longer and is not done by the deadline, if your client gets hacked after that deadline they can sue you for their losses. If you had met the deadline they may not have been hacked, so you can be held liable, but PLI can protect you from this type of claim.
Breach of contract – If your business does not meet the terms of anything specified in the contract between you and your client, you can be sued. This includes deadlines, product guarantees, and payments. PLI will cover you in the event of a claim like this.
Errors – No matter how careful you are, mistakes can happen, and those mistakes can be costly. For example, if you are an insurance agent, and you select the wrong coverage for your client. Or accidentally forget to turn in a portion of their paperwork, your client might not have the proper coverage in an emergency. They could end up losing a lot of money. And could sue you, so you’ll need PLI to financially protect your business.

What Isn’t Covered?

Professional liability insurance policies protect your business from claims of financial losses, not bodily harm or property damage, unlike other types of liability insurance. But there is an exception to this rule: medical malpractice insurance. Other than medical malpractice though, you file bodily injury claims under your general liability policy.

PLI also doesn’t cover lawsuits brought on by employees claiming wrongful termination or harassment. Those claims would fall under employment practices liability policies. Additionally, fraud and criminal acts are not covered by your PLI. If you or an employee intentionally mislead a client or commit a crime, your PLI will not cover the claim.

The Cost of Professional Liability Insurance

Professional Liability Insurance generally costs between $500 and $1,000 per year. This can vary based on several factors, such as:

Your industry – The degree of risk and the financial consequences of a mistake differ from one occupation to the next. All of that is taken into consideration by insurers when setting premiums.
Coverage and deductibles – PLI coverage limits can start at $250,000 and could reach into the millions. Your premium will cost more the higher your limits are. Additionally, if you choose a lower deductible, your premium will be more. When deciding on coverage limits, weigh the annual cost of your policy against potential expenses in the event that a client sues you. You need insurance that will cover both the cost of mounting a defense and potential damages. For instance, a typical professional liability policy will pay up to $1 million for a single claim. Or throughout the course of the policy if the coverage limit is $1 million (per occurrence and aggregate).
Your location – Where your business is located is actually a big factor in your premium. If you work in a city with a high claim rate or significant legal expenses, be prepared for higher premiums.
Workforce size – The likelihood that one of your employees will make a mistake that leads to legal action increases as your workforce grows. As a result of this higher risk, your professional liability rates will increase.
Age of your company – Newer businesses can anticipate paying more for professional liability insurance than larger, more established businesses. But as your company grows in expertise, your insurance premiums should go down, assuming you continue to have no claims.
Claims history – For insurers, a history of prior professional liability claims is a risk. Risks mean higher premiums.

Ways to Save on Professional Liability Insurance

You have no control over certain professional liability cost factors, such as industry and expertise level. However, there are other ways to reduce the overall cost of your insurance:

Pay your premium in full – Typically, insurers will give you a discount if you pay your annual premium all at once rather than on a monthly basis.
Change your deductible and coverage limits – To reduce your overall costs, choose a larger deductible or less coverage. Just be sure your insurance has enough coverage to protect you from potential claims and that your deductible is reasonable.
Bundle your policies – To save money on all of your insurance, bundle your professional liability policy with other commercial insurance protection. Most insurance carriers will discount policies when you buy them together.

How to Avoid a Professional Liability Claim

While professional liability insurance provides financial security in the event that lawsuits are brought against your company, it’s always safer to prevent claim situations than to let insurance handle the fallout from a dispute. There are a few extra precautions you can take to avoid these claims. For example:

Strengthen your processes and procedures – It will be easier to guarantee that the work performed is of a high standard and that the possibility of errors is lower if there are extensive plans and supervision in place.
Ensure there is strong communication between you and your clients – Making sure your contracts and agreements are clear and detailed keeps everyone on the same page. This reduces the chance of misunderstandings.

Being careful during business operations and constantly communicating with your clients won’t guarantee that you never have a claim. But it can certainly help reduce the possibility of having one.

FAQS

Can I get professional liability insurance in a business owner’s policy?

No, a typical business owner’s policy includes coverage for property, business interruption, and general liability. A separate policy for professional liability insurance would be necessary.

Do I legally need to have professional liability insurance?

In most circumstances, the law does not require professional liability insurance for small businesses. Professional liability insurance is only necessary for some professions, such as law and medicine. To find out what kinds of small business insurance your company must have, research the regulations in your state.

Will my professional liability policy cover part-time employees or contractors?

Most of the time, yes, your PLI will cover your part-time employees and subcontractors. Make sure to specify that you’ll need this kind of coverage when you request a quote.

Do I really need professional liability insurance?

Your company needs professional liability insurance if you offer clients a professional service or expert opinion. Professional liability insurance is clearly necessary for many occupational areas. Including those like law and medicine, but there are additional fields that you might not expect. Professional liability insurance can help advertising companies, IT consultants, and beauty professionals reduce the risks associated with giving clients and consumers advice.

How to Find Professional Liability Insurance

Generally speaking, all major insurance companies offer professional liability or errors and omissions insurance. If you already have business insurance, inquire with your carrier about the possibility of expanding your coverage to include professional liability.

Your best bet, though, is to work with an insurance agent. EZ’s agents are highly trained and work with the top companies in the nation. We can compare all of your policy options while working with your budget to get your company all the coverage it needs. For a free quote enter your ZIP code below or give us a call at (855)-694-0047 to be connected directly to one of our agents today.

Workers’ Comp Exemption Explained

Workers’ Compensation is an essential type of commercial insurance coverage for most businesses, but not everyone is required to have it.

To give you a better understanding about what workers’ comp exemptions are, we’ll be discussing:

The professionals who may qualify for an exemption.
Varying state laws in regards to exemptions.
How to file for an exemption.
The risks of opting out of.

Let’s take a look!

Common Workers’ Comp Exemptions

Workers’ compensation coverage is an essential type of commercial insurance, protecting employees against the costs involved with workplace injuries. While it is legally required in almost all 50 states, certain businesses and individuals are allowed to opt out. Doing so can help small businesses in particular save money, but also comes with some risks.

Now let’s start by exploring the most common exemptions:

Independent Contractors and Sole Proprietors

Since sole proprietors and independent contractors work for themselves, they have no employees. Because of this fact, many states allow them to opt out of workers’ compensation requirements.

Corporate Officers and Owners

High-level executives such as owners of large corporations and corporate officers oftentimes qualify for a workers’ comp exemption. It’s important to note that in this situation, the executive alone won’t receive workers’ compensations benefits, but normal employees are still required to.

Family Members in Family-Owned Businesses

In some states, immediate family members who work for a family business may be able to opt out of workers’ comp requirements. For example, a spouse or child who

works for their family’s restaurant may be eligible for an

exemption in many cases.

Seasonal or Casual Workers

For some professions, work tends to be short term depending on the industry, specific season, or special circumstances. Many states allow workers, who are seasonal or temporary, to opt-out of workers’ compensation requirements. In these situations it’s important to read about the industry-specific requirements in addition to the state requirements.

Agricultural Workers

In some states farm laborers and other agricultural workers can be exempt from workers’ comp requirements. Similarly to temporary workers, it’s important to read up on specific agricultural laws in your state to make sure you’re legally compliant.

State-by-State Workers’ Comp Exemption Variations

As briefly mentioned, each state has its own separate laws in regards to workers’ compensation requirements. While we won’t go through every state’s specific laws, you can find more detailed information by looking at our Workers’ Compensation Insurance Rates and Coverage by State overview.

Here are some examples of states with unique workers’ compensation laws:

Texas: Private employers don’t have to provide workers’ compensation coverage at all (they are the only state with this law).
Florida: While construction workers usually face stricter requirements than in many other states, sole proprietors can apply for exemptions.
California: There are very few exemptions allowed. One of the only types of professionals who may become exempt with specific circumstances are corporate officers.
New York: While sole proprietors are exempt, many specific types of contractors must be covered.
Pennsylvania: Unless they employ other people, sole proprietors are exempt.

*It’s important to always check with your state’s labor and workers’ compensation board to fully understand the specific exemption requirements for your state and industry.

How to File for a Workers’ Comp Exemption

Apply: After finding out if you and your business are eligible for workers’ comp exemptions, you’ll need to apply through your state’s labor department or workers’ compensations board. This is usually as easy as filling out a lengthy application, but sometimes requires a sworn affidavit.
Required Documents: During the application process you’ll likely need to provide some specific documentation. Standard document requirements include proof of business ownership, proof of family relationships (for family-owned businesses), or proof of your independent contractor status.
Exemption Renewal: Most states require you to renew your workers’ compensation on a periodic basis. For some states, it’s every year, for others, it’s every couple of years, so be sure to check with your labor board for your local requirements.

Risks of Obtaining a Workers’ Comp Exemption

Financial Risks: While opting out of your state’s workers’ compensation requirements could save you money upfront, you run the risk of facing expensive out-of-pocket costs if you or an employee gets injured on the job.
Legal Risks: If you fail to cover an employee who is in fact required to have workers’ compensation coverage you will face steep fines and/or other legal penalties. The same consequences apply if you incorrectly claim an exemption.

If you are eligible for an exemption it’s important that you take the time to weigh your options. While we encourage you to play it safe and get some level of workers’ compensation for your business, it is a personal choice and each option has pros and cons.

Why You May Want Workers’ Comp, Even if You Are Exempt

High-Risk Professions: If you work in a high-risk industry such as construction, it’s likely worth it to obtain a workers’ compensation policy even if you’re not legally required. This is mainly because the risk of injury is so much higher in these professions in comparison to other ones.
Protect Your Assets: A workplace injury could result in a lawsuit costing hundreds of thousands of dollars without a workers’ compensation policy in place. In this dreadful situation, many business owners simply cannot afford to keep their company afloat, while also paying the settlement.
Employee Trust: Having a comprehensive workers’ compensation policy in place shows your employees that you truly care about their health and well-being. This helps to instill a sense of trust and loyalty among team members.

Learn More About Your Options at EZ.Insure

Workers’ compensation insurance is a crucial type of coverage that extends to employees by covering the costs associated with workplace accidents. While there are some benefits of opting out of your state’s requirements, it’s important to first weigh the pros and cons before making a decision.

To learn more about workers compensation coverage and other key business protections, visit our full resource library.

If you’re interested in taking the next step to cover your team, EZ.Insure also provides free quotes, and expert help from licensed insurance agents. To get started, simply fill out the form on the righthand side of the screen or call us at (855)-694-0047.

Independent Contractor Insurance: Protecting Your Business From Risk

Once your business is up and running, you might come to the realization that you can’t do it all, and you’ll need more help. Instead of hiring a full-time employee to handle some projects, you might opt to go for an independent contractor, vendor, or other third party. This is a great choice for small business owners, to save money and grow your business. When you go this route, it’s important to understand the downfalls if you don’t properly insure independent contractors you hire.

Insurance Options

If you decide to expand your workforce with independent contractors, you might have to upgrade your commercial insurance. If an independent contractor you hire makes a mistake without insurance, you could end up paying a lot of money.. That’s because the client can sue both you and the contractor for financial damages. With all that said, it is important to be protected in these instances. So you have two options:

Hire an insured contractor: If something goes wrong and you are sued, you can sue the contractor and recoup some of your losses. You can check if they have coverage by reviewing their certificate of liability insurance.
Add your independent contractor to your general liability policy as an additional insured: This means that they are covered by your insurance for the duration of the job. Make sure you have the right commercial insurance policies. This means a policy covering temporary staff and independent contractors for any work they perform for you.

Key Benefits of Independent Contractor Insurance

When working with independent contractors, having the appropriate insurance coverage in place can provide critical protection for your company. Here are some major advantages of ensuring your independent contractors are properly insured:

Financial Protection from Lawsuits. If an independent contractor has an accident or makes, getting them insured protects you from major financial losses. Without appropriate insurance, your company may be held liable for damages, legal fees, and compensation. Independent contractor insurance assures that you are not solely responsible for these charges.
Coverage for Errors and Omissions (E&O). Contractor errors and omissions insurance (E&O) protects against claims based on mistakes, negligence, or inability to deliver services as promised. This coverage protects your company against the financial consequences of contractor errors, protecting you from costly legal fights.
Liability Insurance for Third-Party Injuries and Property Damage. When independent contractors are covered under general liability insurance, it provides protection against third-party claims for bodily injuries and property damage. Whether an accident injures a client or damages their property, general liability insurance covers such instances, reducing your financial exposure. You can add a contractor to your policy as an “additional insured.” That way the policy covers accidents, property damage and physical injuries caused by the contractor
Professionalism and Peace of Mind. Contractors with insurance or who are covered by your policy ensure that both parties are protected, providing you with peace of mind. This not only protects your organization, but also strengthens your reputation as a responsible business owner.
Reduces Potential Gabs in Coverage. With an independent contractor add to your policy, you’ll reduce potential gaps in coverage. Doing so is crucial for safeguarding your company against unforeseen liabilities resulting from contractor errors or mishaps.

Professions Where Independent Contractor Insurance is Crucial

Independent contractor insurance is especially crucial for specialists in high-risk industries. These are jobs where liability, property damage, or errors can result in substantial financial losses. Some occupations where this insurance is particularly important include:

Construction Workers and Contractors. Construction projects involve numerous hazards, including property damage and on-site accidents, making liability coverage vital.
Freelance Designers and Developers. Errors in design or software development may result in financial losses for clients, prompting legal action.
Consultants and Business Advisors. Mistakes or oversights in professional advise can have financial or legal ramifications for clients, making professional liability insurance essential.
Real Estate Agents and Brokers. These specialists handle major financial transactions and may face legal ramifications if problems develop during negotiations or closings.
Photographers and Videographers. Misplaced or damaged equipment, missed photos, or liability during events can result in financial loss, hence insurance is essential for these positions.

Compare Quotes

Considering the cost of court fees, medical expenses, and repairs that might arise from negligence or accidents, having the appropriate insurance coverage is less expensive than risking the financial strain of a large liability claim. To save money, compare free quotes with an EZ agent. We’ll provide you with one agent to walk you through the process and find you the best policy available. To get free instant quotes, simply enter your zip code in the bar above, call us at 855-694-0047. No hassle, no obligation.

Do I Need Workers’ Compensation Insurance If I Have 1099 Contractors?

Workers’ compensation insurance is a key part of most companies’ risk management plans. Workers compensation coverage pays for lost wages and medical expenses when someone is injured on the jobsite.

Most states require all businesses to have workers’ compensation insurance of some sort. But does the same rule apply to 1099 workers?

1099 workers, also known as independent contractors, are usually put in their own separate category from typical W2 employees. With that said, it’s important to address the question of—do business owners who have 1099 employees need workers’ comp? Read on to find out!

Understanding Workers’ Compensation Insurance

Workers’ compensation coverage protects employers and employees when there is an injury or illness that takes place in the workplace. If an employee gets hurt on the job, this insurance covers their medical costs and pays them a portion of their wages. Additionally, workers’ comp is important for business owners because it protects against lawsuits brought on by employees.

In terms of legal requirements, it’s important to take a look at the guidelines for the specific state you’re operating out of. Generally speaking though, in most states workers’ compensation is a requirement for businesses of all sizes. Some other states allow businesses with a small number of employees to not obtain this coverage. For example, in Florida, companies with 4 or less employees in non-construction industries are exempt from workers compensation requirements.

W-2 vs. 1099 Employees

A W-2 employee, also referred to as a traditional employee, is a formally employed individual working for a company or organization in the United States. These employees work directly under the control of their employer and in turn, their employer withholds taxes from their wages. W-2 employees make up the majority of America’s workforce. As mentioned above, almost all employers have to provide this type of employee with worker’s compensation insurance.

On the other hand, 1099 workers actually aren’t considered employees. They are independent or self-employed contractors. Unlike W-2 workers, 1099 workers manage themselves and are responsible for their own taxes. Since they are freelancers and not employees, it’s often believed that workers’ compensation coverage is not required. While this is usually true, it’s not always that straightforward.

Do 1099 Contractors Need Workers Compensation Insurance?

The simple answer is no. There is no law stating that businesses must provide workers compensation insurance to 1099 workers. Since 1099 workers are self-employed, they’re generally expected to have their own insurance for things like healthcare and liability coverage. With all this said, in certain scenarios businesses are still held liable for injuries sustained by a 1099 contractor.

One situation that’s more common than you’d think is the misclassification of contractors. For example, if a company classifies someone as a 1099 contractor who isn’t, they will be held liable if there is a workers’ comp claim. This is not to mention the many other penalties that come along with employee misclassification. Another example where a business could be held liable is when the work agreement lacks a proper contract. In this case, since there isn’t a clear definition of the work agreement, the 1099 contractor may argue that they are effectively working as an employee. While these scenarios are usually few and far between, it’s important to always have work agreements in writing. Also be sure to look into your state’s and industry’s specific requirements.

Protecting Your Business and Contractors

So we learned that workers compensation insurance usually isn’t required for 1099 contractors. With that said, there are some things that you should do to avoid the risks associated these workers:

Make sure they have their own insurance coverage: As briefly mentioned, since 1099 workers are employed by themselves, they should have their own insurance. Liability coverage is the most important thing to look for.. Many business owners require their 1099 contractors to have liability coverage. If this is the case for your operation, be sure to let them know ahead of time.
Explore contractor-specific coverage options: For an extra layer of protection, you might consider exploring insurance plans that are designed specifically with 1099 contractors in mind. While the best practice is for these workers to have their own coverage, providing contractor-specialized coverage goes the extra mile in protecting yourself and the worker.
Have a clear definition of the relationship between yourself and your contractor(s): Before the rubber hits the road, it’s crucial to define the workers’ relationship to you. It’s a good idea to have this in writing in case anyone ever tries to deny your claim. Additionally, make sure that you state that the contractor is not eligible for the same benefits as a W-2 worker and that they must provide their own insurance coverage.

The Main Takeaway

Mistakes in the workplace can be costly, especially if you don’t have the proper insurance policy in place. While most businesses have to provide their employees with workers’ compensation coverage, we’ve learned that 1099 contractors are completely different. With that said, even if it’s not a requirement to provide these people with workers’ comp, it’s crucial to understand the risk and to take the proper precautions.

When it’s all said and done, issues involving 1099 contractors and claims are usually avoidable with clear communication, and accurate record keeping. Additionally, we suggest that you always require any 1099 worker to show proof of their own insurance coverage before starting a job. If you’re ever even a little bit unsure about coverage details, reach out to an insurance professional, like the experts we have at EZ.Insure.

If you’d like to learn more about workers compensation, or other essential business coverages, EZ.Insure is the place for you. Our simple platform lays out all the best local insurance options, making it EZ to choose the best coverage.

Our blog also has a ton of informational articles aimed at helping business owners and individuals stay protected. To learn more, just enter your ZIP code at the top of the page, or call us at 888-694-0047.

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What is General Liability Insurance?

What Does General Liability Cover?

What Doesn’t General Liability Cover?

The Benefits of General Liability Coverage for Small Businesses

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How Much Does General Liability Cost for Small Businesses?

Frequently Asked Questions

Does the law require small businesses to have general liability insurance?

How much coverage do I need?

What differentiates general liability insurance from professional liability insurance?

What types of businesses benefit from general liability?

Why Your Business Should Have General Liability Coverage

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How Professional Liability Works

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What Does Professional Liability Cover?

What Isn’t Covered?

The Cost of Professional Liability Insurance

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Ways to Save on Professional Liability Insurance

How to Avoid a Professional Liability Claim

FAQS

How to Find Professional Liability Insurance

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Common Workers’ Comp Exemptions

Independent Contractors and Sole Proprietors

Corporate Officers and Owners

Family Members in Family-Owned Businesses

Seasonal or Casual Workers

Agricultural Workers

State-by-State Workers’ Comp Exemption Variations

How to File for a Workers’ Comp Exemption

Risks of Obtaining a Workers’ Comp Exemption

Why You May Want Workers’ Comp, Even if You Are Exempt

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Insurance Options

Key Benefits of Independent Contractor Insurance

Professions Where Independent Contractor Insurance is Crucial

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Understanding Workers’ Compensation Insurance

W-2 vs. 1099 Employees

Do 1099 Contractors Need Workers Compensation Insurance?

Protecting Your Business and Contractors

The Main Takeaway