6 business insurance policies you may need as a consultant

1. General liability insurance

What it covers

General liability insurance is one of the most important insurance policies for a consulting company. It covers your business in the event of a third-party liability claim related to:

• Client bodily injury
• Client property damage
• Advertising injuries, like copyright infringement or defamation

Consultants regularly meet with clients in their own offices as well as at their clients’ businesses – which puts them at greater risk for lawsuits over an accidental injury or property damage.

If your consulting business is sued, your general liability insurance policy will pay for your legal defense, a settlement with the other party, or any court-ordered judgments to cover a loss.

How much it costs

The average cost of general liability insurance for a consulting business is $350 per year, which breaks down to less than $30 per month.

How it can help

For example, imagine that a marketing consultant holds a business meeting in their office, and their client slips on a wet floor and breaks a bone while walking to the conference room. In this case, general liability insurance would cover the client’s medical bills.

Because a general liability policy provides protection for the client, it's a common requirement in client contracts. General liability coverage may also be required as part of a mortgage or lease for a commercial office space.

2. Professional liability insurance

What it covers

Professional liability insurance is also known as errors and omissions insurance (E&O). This insurance policy protects your business against client lawsuits alleging financial harm due to unsatisfactory work or poor advice.

Any business that offers professional services should consider a professional liability policy. Businesses like consulting firms are at greater risk of being accused of a costly mistake, oversight, or negligence. Even if you’re not at fault, E&O coverage can protect you.

Some common examples of professional liability insurance claims include:

• Work mistakes
• Overspending
• Undelivered services
• Missed deadlines
• Claims of negligence

An E&O insurance policy is an important part of risk management for consultants. If your business gets sued by a client, this coverage will pay for your lawyer fees, court costs, and any settlements or judgments.

How much it costs

The average cost of professional liability insurance for a consulting business is $650 per year or about $55 per month.

How it can help

For example, let’s say an IT consultant is hired to help a client evaluate and improve their cybersecurity measures, but the client suffers a data breach several months later. The client sues the consulting firm, claiming their mistakes led to the breach. In this case, technology E&O insurance, which combines an E&O policy with third party cyber liability insurance, would cover the cost of the lawsuit.

Professional liability insurance also provides peace of mind for your clients. Because of that, many companies require their consultants to carry E&O insurance before signing a contract.

3. Business owner's policy

What it covers

A business owners’ policy (BOP) is a bundle that includes two separate insurance policies:

• General liability insurance
• Commercial property insurance

While general liability insurance protects against third-party liability lawsuits, commercial property insurance pays to repair or replace damaged and stolen business property. It covers physical office spaces and storefronts, as well as equipment, inventory, and electronics.

However, not all consulting businesses will qualify for a BOP. This policy is generally available to businesses that:

• Have fewer than 100 employees
• Have a small office or workplace
• Make less than $1 million in annual revenue
• Operate in a low-risk industry
• Need less than one year of business interruption insurance

If you’re thinking about getting a BOP for your consulting firm, speak to an insurance agent and find out if you qualify.

How much it costs

Purchasing a business owner’s policy typically costs less than buying general liability and commercial property insurance separately. The average cost of a BOP for a consulting business is $500 per year, which is roughly $40 per month.

4. Workers’ compensation insurance

What it covers

Workers’ compensation insurance covers medical expenses and lost wages if an employee suffers a work-related illness or injury. It’s required in nearly every state for businesses with one or more employees.

How much it costs

The average cost of workers' comp insurance for a consulting company is $500 annually or about $40 per month. However, your premium depends on factors like the number of employees you have and the amount of risk your employees face on the job.

How it can help

For example, imagine that an employee at a research consulting firm trips on a power cord in the office and injures their knee. The firm’s workers’ compensation insurance would cover the employee’s lost wages for the time they are unable to work, as well as the cost of their medical bills, like X-rays and physical therapy.

In additional to paying an employee’s medical bills and partial lost wages, most policies also include employer’s liability insurance to protect your business if an injured worker files a lawsuit against you for not preventing a workers’ comp injury.

Using the example above, now let’s say that the injured employee decides to sue their employer for unsafe working conditions. In this case, the employer’s liability insurance portion of the firm’s workers’ comp policy would cover their legal fees and attorney costs.

5. Cyber liability insurance

What it covers

Cyber liability insurance is important for many types of consulting companies, and there are two different types of this insurance. Depending on the nature of your business, you may need both.

First-party cyber liability insurance covers data breaches and other cyber incidents that affect your business’s systems or network. It pays for expenses such as:

• Notifying clients of the breach
• Credit monitoring services for affected clients
• Cyber extortion demands
• Public relations and reputation management services

Third-party cyber liability insurance legally protects your business if your client suffers a breach and files suit against you. It will cover costs such as:

• Attorney fees
• Court costs
• Settlements or judgments

Consultants that handle sensitive data, or advise clients on IT systems or cybersecurity, are most in need of this coverage.

How much it costs

Cyber liability insurance can be expensive. The average premium is $1,675 per year or roughly $140 per month. But keep in mind that your rate will depend on a number of factors, such as the amount of sensitive information your firm handles and the type of work you do.

How it can help

Here’s a hypothetical situation where cyber liability insurance would come in handy. Say that a research consultant is hired to analyze a client’s sensitive data. The consulting firm suffers a cyberattack, and the client’s data on their servers is breached. In this case, the firm’s cyber liability insurance would cover the damages.

6. Fidelity bond

What it covers

Fidelity bonds offer protection if your employee steals from you or your client. It provides coverage against:

• Theft
• Fraud
• Embezzlement
• Unlawful data access

There are two types of fidelity bonds: first-party and third-party.

First-party fidelity bonds protect your consulting firm from the actions of dishonest employees. This bond will cover expenses related to:

• An employee who steals or embezzles money from your company
• An employee who commits fraud against your company
• An employee who commits forgery that affects your company

Third-party fidelity bonds protect your clients if one of your employees commits a crime against their business. It will cover the fallout related to:

• An employee who steals from one of your clients
• An employee who commits fraud against one of your clients
• An employee who commits forgery against one of your clients

How it can help

Here’s a quick example. Imagine that an employee of your market research consulting firm transfers funds from a client without their consent. The client finds out that your employee illegally moved the money, and they sue your business for their losses. In this situation, a fidelity bond would cover the cost of reimbursing your client for the theft.

Although fidelity bonds are often grouped with insurance policies, they aren’t the same thing. Your business must repay the insurance company for any payments made under a claim with fidelity bonds.

So, if your fidelity bond provider reimbursed your firm for $2,000 following an employee theft, you would be expected to repay the insurer the full $2,000 down the line.

How much it costs

The cost of fidelity bonds depends on a variety of factors, but primarily the size of the bond. The average annual cost of a fidelity bond for a small business is $1,055, or $88 per month.