When you run your own show, you probably need small business insurance to address your liabilities and protect your work gear. But sometimes, it's hard to tell whether or not the work you do actually qualifies as small-business ownership, especially if it's not your primary source of income.
So what then? If you're having a hard time determining whether your hobby or side gig requires you to carry insurance, this post is for you. Here are the five types of workers who could benefit from their own coverage.
1. Rideshare Drivers
Insurance Journal states about 75 percent of rideshare drivers (i.e., those who offer services for Uber or Lyft) don't have ridesharing insurance. Conventional personal auto insurance policies usually don't cover commercial driving activities, which is what ridesharing technically is.
There is an easy fix: talk to your insurance agent about your ridesharing activities. Insurance companies are currently scrambling to offer rideshare-specific policies, but Commercial Auto Insurance may also help fill the gaps in personal policies.
Say you write for a living, mostly think pieces for online publications. You're not beholden to any single publication, and you do a good job of cobbling together enough work to pay your bills. But that doesn't mean you're a small-business owner, right?
In the eyes of the IRS, you are indeed a small business. Any paid freelancing work that generates $400 in revenue is subject to self-employment taxes, but that's not all. If you miss a deadline or give unreasonable advice, your clients can sue you for breaching your contract or claim your negligence caused them financial loss. And the list goes on.
According to a study by Freelancers Union and Elance-oDesk [PDF], you're not alone – 34 percent of the US workforce is made up of freelancers. By and large, most of these 53 million Americans need small business insurance to address the risks they take on by working for themselves.
The kicker? Many of these workers don't realize the risks they have and aren't insured.
Let's say you're a baker – and a good one at that. You create custom desserts for corporate events, bake sales, and special occasions. It's nothing too serious, you tell yourself – just a hobby that happens to make you a little extra money on the side while you work as a full-time employee at a local bakery.
Now riddle us this: are you a small-business owner?
In short, the same rules apply here as they do to freelancers. You are liable for any work you do on your own. Though the bakery you work for probably has insurance to address the mistakes you may make while representing that business, it can't cover your part-time venture.
4. Home-Office Heroes
According to the Small Business Administration [PDF], about 52 percent of all small businesses are home-based. But as the Insurance Information Institute reported several years ago, 60 percent of home-based businesses don't have commercial insurance.
Turns out many at-home business owners may mistakenly think their homeowner's insurance covers their liabilities and commercial property losses. Not so. Many homeowner's policies don't include coverage for business assets or business-related lawsuits. If they do, that coverage is likely a fraction of the protection a Business Owner's Policy offers.
So if, for example, you have a client over to your house for a meeting and your tiny Pomeranian chews on their Prada briefcase, don't expect your homeowner's policy to cover that property damage.
To learn more about the limitations of a homeowner's policy, check out our infographic "Is Your Home-Based Business Covered?"
5. Independent Contractors
As far as the IRS is concerned, there's not much distinction between a freelancer and an independent contractor. Both work for businesses on a project-by-project basis, both work for themselves (meaning they can pick and choose their work), both are responsible for paying self-employment and income taxes, and both need their own insurance coverage.
So if you rent a booth in a salon, you're an independent consultant, or you receive a 1099 from a client, you're an independent contractor. As such, you assume the liabilities that come with your line of work.
For example, say you do rent a booth at a salon. You use a type of hair dye on a client that causes an allergic reaction. That client could sue you over the resulting medical expenses. That's why it's smart to have General Liability Insurance, which can provide coverage for third-party injuries, and Errors and Omissions Insurance, which can step in when you're sued over providing subpar work.
Also worth noting: your clients may require you to carry insurance anyway, so taking the initiative now can make you more marketable later. To learn more about the freelancer insurance or contractor insurance clients may require, read "The Small-Business Owner's Guide to Contractor Liability Insurance."