The Biggest Insurance Mistakes Independent Contractors Make

Independent contractors enjoy the freedom of self-employment, but that freedom comes with responsibilities—especially when it comes to insurance. Many contractors unknowingly expose themselves to financial and legal risks by making critical mistakes when choosing or managing insurance coverage.

Below, we break down the biggest insurance mistakes independent contractors make and how to avoid them.

1️⃣ Assuming You Don’t Need Insurance

🚨 Mistake: Many independent contractors believe they don’t need insurance because they:

• Work alone with no employees
• Have a low-risk business (e.g., consulting, freelancing)
• Believe their clients will cover them

✅ Why This is a Problem: Without insurance, you could be personally liable for lawsuits, damages, or business interruptions. Even one unexpected event—like a client lawsuit or equipment damage—could lead to financial loss.

💡 How to Avoid It: ✔ Assess your risks—Consider liability, property damage, and legal exposure ✔ Check client requirements—Many clients require proof of insurance before hiring contractors ✔ Consider General or Professional Liability Insurance—This provides protection from lawsuits, accidents, and errors in your work

2️⃣ Relying on Personal Insurance for Business Risks

🚨 Mistake: Some independent contractors assume their personal insurance (home, auto, or health) covers business activities.

✅ Why This is a Problem:

• Homeowner’s insurance usually doesn’t cover business property or work-related incidents
• Personal auto insurance won’t cover business use of a vehicle
• Health insurance won’t cover workplace injuries—that’s what Workers’ Comp is for

💡 How to Avoid It: ✔ Get a Business Owner’s Policy (BOP) if you run your business from home ✔ If you drive for business, consider Commercial Auto Insurance ✔ If you work in high-risk environments, consider Workers’ Compensation Insurance—even if you’re self-employed

3️⃣ Buying the Cheapest Policy Without Understanding Coverage

🚨 Mistake: Independent contractors often choose the cheapest insurance without reading the details, assuming all policies are the same.

✅ Why This is a Problem:

• Exclusions & limits—Cheaper policies often exclude critical coverage
• High deductibles—You could end up paying more out-of-pocket
• Low coverage limits—If you’re sued, an insufficient policy may not cover legal costs

💡 How to Avoid It: ✔ Compare coverage, exclusions, and limits—not just price ✔ Work with an insurance agent who understands your industry ✔ Choose a policy that balances affordability and protection

4️⃣ Not Having a Written Contract with Liability Protection

🚨 Mistake: Many independent contractors skip contracts when working with clients, leading to legal and financial risks.

✅ Why This is a Problem:

• No contract = No legal clarity if a client refuses to pay or sues for damages
• Clients can hold contractors liable for work errors or project delays

💡 How to Avoid It: ✔ Always use a contract that outlines responsibilities, payment terms, and liability waivers ✔ Add an indemnification clause to protect against lawsuits ✔ Consider Errors & Omissions (E&O) Insurance to cover professional mistakes

5️⃣ Forgetting to Update or Renew Insurance Policies

🚨 Mistake: Many contractors buy insurance once and forget about it, leading to coverage gaps.

✅ Why This is a Problem:

• Outdated coverage—As your business grows, your risks increase
• Lapsed policies—You could lose coverage when you need it most
• Underinsured situations—If revenue or staff increase, your current coverage may not be enough

💡 How to Avoid It: ✔ Review your policy annually and update it as needed ✔ Increase coverage if your business expands or risks change ✔ Set calendar reminders for renewal deadlines to avoid policy lapses

6️⃣ Ignoring Workers’ Compensation If You Hire Help

🚨 Mistake: Independent contractors often hire subcontractors but don’t provide workers’ compensation insurance, assuming they don’t need it.

✅ Why This is a Problem:

• State laws often require it—You could face fines for non-compliance
• If a worker gets injured, you could be sued for medical costs
• Some clients won’t hire contractors without proof of workers’ comp coverage

💡 How to Avoid It: ✔ If you hire workers, check your state’s Workers’ Comp laws ✔ Consider a workers’ comp policy, even if you use subcontractors ✔ Have subcontractors provide their own proof of insurance

7️⃣ Not Having Business Interruption or Cyber Insurance

🚨 Mistake: Independent contractors overlook business interruption and cyber risks, thinking they don’t apply to them.

✅ Why This is a Problem:

• Natural disasters, theft, or lawsuits can halt business operations
• A cyberattack can lead to stolen client data and legal issues

💡 How to Avoid It: ✔ Business Interruption Insurance covers lost income if you can’t work ✔ Cyber Liability Insurance protects against hacking, fraud, and data breaches ✔ If you handle sensitive client data, ensure you have a security plan in place

🔹 Final Thoughts: Protecting Your Business the Right Way

🔸 Skipping insurance is a risk you don’t want to take—one lawsuit or accident can cost more than years of coverage 🔸 Evaluate your business risks regularly—your needs change as your business grows 🔸 Choose the right coverage, not just the cheapest policy—protection is an investment in your business’s future

Want to ensure you have the right coverage?
Use our Independent Contractor Insurance Needs Checker to evaluate your insurance needs.