A complete guide to independent contractor liability insurance

For many organizations that work with freelancers, 1099 employees, and independent contractors, liability insurance is imperative. It safeguards businesses from legal disputes, financial losses, property damage, and other unforeseen mishaps. It's also especially helpful for those in high-risk industries, providing peace of mind by protecting against incidents that could have significant legal and financial repercussions for both the contractor and the business.

In this guide, we’ll explain the different types of independent contractor liability insurance and offer practical tips on choosing the right option for your global team.

What is independent contractor liability insurance? 

Independent contractor liability insurance typically encompasses two primary types: general liability and professional liability. 

General liability insurance protects independent contractors against accusations of physical injury, property damage, or reputational harm. For instance, if a freelance photographer accidentally damages a client’s property during a shoot, general liability insurance would cover the repair costs. Likewise, if a personal trainer’s advice or equipment results in a client’s injury and subsequent loss of wages, it would cover any associated legal fees and financial compensation.

Professional liability insurance, also known as errors and omissions insurance, safeguards independent contractors from legal claims alleging that their work caused a client financial loss. For example, if a freelance investment consultant’s advice leads to a client’s financial loss in the stock market, professional liability insurance would cover the resulting legal expenses. 

Do independent contractors need liability insurance? 

In the United States, federal, state, and local laws do not typically require liability insurance for 1099 employees, independent contractors, or other types of contingent workers. However, it offers legal and financial protection against unexpected situations, particularly in professions with higher risks of personal injury, disputes, and property damage, such as:

• Personal trainers 
• Information technology (IT) consultants
• Photographers
• Freelance writers
• Graphic designers
• Marketing consultants
• Event planners
• Real estate agents

Outside the United States, independent contractor liability insurance requirements vary depending on the country and specific industry regulations. Here’s a general overview of how some regions handle it:

• European Union: Liability insurance for independent contractors is often regulated at both the E.U. and national level, particularly in regulated professions such as law, healthcare, and engineering. For example, in countries like Germany and France, professionals in certain fields may be required to have liability insurance to practice.
• Canada: Similar to the U.S., Canada does not generally mandate liability insurance for all independent contractors. However, specific professions such as contractors in construction, healthcare professionals, and consultants in various fields may need liability insurance either due to regulatory requirements or as a condition of their contracts.
• Australia: In Australia, certain types of independent contractors, especially in trades and professions that involve significant public interaction or risk (like construction, consulting, and medical services), are often required to hold liability insurance. This requirement can be enforced at the state level or through industry bodies.
• United Kingdom: While there is no universal requirement for all independent contractors to have liability insurance in the U.K., it is highly recommended and often required in many professional services contracts. Specific professions, particularly those that are regulated, such as legal and financial services, may have mandatory insurance requirements.
• East Asia: The requirements in East Asian countries can vary significantly. For example, Japan and South Korea have specific insurance requirements for certain engineering and construction roles, while other countries in the region may have less stringent regulations.
• Middle East: In the Middle East, liability insurance requirements depend heavily on the specific country and industry. For instance, countries with significant construction and engineering projects, like the United Arab Emirates and Saudi Arabia, often require contractors to carry certain types of liability insurance.  

How much does independent contractor liability insurance cost?  

The cost of independent contractor liability insurance can vary widely based on several factors, including the industry, level of risk associated with the work, coverage needs, geographical location, and the contractor’s claims history. In the United States, for example, general liability insurance costs for independent contractors can range from as low as $300 to $1,000 per year for low-risk industries but significantly more, $1,000–$3,000 annually, depending on the following factors:

• Industry and risk: High-risk sectors like construction, engineering, or operating heavy machinery typically face higher premiums due to the greater likelihood of claims. In contrast, professionals in lower-risk fields like freelance writing or graphic design may see lower insurance costs.
• Coverage limits: The amount of coverage significantly impacts the cost. Higher limits of coverage mean higher premiums. Policies in the United States often cover anywhere from $500,000 to $2 million.
• Deductibles: The deductible, or the amount you pay out of pocket before insurance kicks in, can also affect your premiums. A higher deductible generally lowers your premium, but it means more out-of-pocket expenses when a claim is made.
• Location: Insurance costs can also vary by state and city due to different legal environments and cost of living.
• Claims history: Contractors with a history of making insurance claims may face higher premiums as they are considered higher risk.

Additional insurance for independent contractors 

Different professions require different types of insurance, especially for independent contractors, whether they work in construction, cybersecurity, or other fields. Here are several key types of insurance that independent contractors might consider:

Workers' compensation insurance 

This insurance protects workers who are injured or become sick on the job, covering medical bills, medications, lost wages, and rehabilitation expenses. If an independent contractor working in construction suffers a physical injury that leaves them unable to work, workers' compensation would pay their wages and medical bills while they recover.

Cyber liability insurance 

For contractors in the tech sector, cyber liability insurance offers protection against the financial repercussions of digital threats such as data breaches or software hacks. This coverage can include the costs of credit monitoring and notifying customers about data security breaches. If an IT contractor experiences a system hack, this insurance would cover the related expenses.

Commercial auto insurance 

This coverage protects independent contractors who use vehicles for their work against the costs of auto accidents, including damage to property and any medical expenses that arise. If a delivery driver is involved in a car accident while on the job, commercial auto insurance would handle the related costs.

Commercial property insurance 

This insurance protects the tools and equipment that independent contractors use for their work, such as computers and other technological products like software. It compensates for the repair or replacement of items that are stolen or damaged. If a graphic designer loses their laptop to theft, this insurance would cover the replacement cost.

Additional liability insurance options for global contractors 

Contractors working for companies based in countries other than their own often encounter specific risks. These can include differing business practices, cultural misunderstandings, and navigating complex legal frameworks across borders. The following types of insurance provide protection for contingent workers operating in international markets:

• Foreign general liability insurance: This insurance offers coverage against claims of injury and property damage that occur abroad.
• International professional liability insurance: This covers legal expenses in cases where an international client alleges financial losses due to the contractor's services. 
• Business travel insurance: This covers issues related to international business travel, including medical emergencies, lost luggage, and trip cancellations.
• Political risk insurance: This safeguards contractors from losses related to government actions and political instability in foreign countries.
• Export credit insurance: This protects contractors from the financial risk of non-payment by overseas clients.
• Kidnap and ransom insurance: This provides financial protection and crisis management resources in the event that a contractor is kidnapped.
• Foreign voluntary workers' compensation insurance: This covers medical expenses and lost wages if a contractor is injured or falls ill while working abroad.

A platform for streamlined global contracting  

Oyster makes growing your international dream team a reality. The comprehensive platform streamlines every aspect of working with independent contractors, from hiring and onboarding to paying and managing talent in more than 180 countries. Oyster’s Employer of Record service simplifies the daunting tasks of navigating contractor terms, invoices, payments, tax forms, payroll, and reports while assuring compliance across borders.

Discover how Oyster can help you say goodbye to legal headaches and hello to operating worldwide with confidence and ease.

About Oyster‍

Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.