Starting your own small consulting company is not as simple as it sounds. As well as registering your business, marketing your brand and finding customers, you will also need Liability Insurance.

Why?

Liability insurance is vital to any secure and successful consulting practice. In the course of providing your expertise and knowledge to your clients, you may accidentally make errors which can have significant financial consequences for your business. Liability insurance is your best protection for those unfortunate circumstances. Liability coverage will protect both your business and personal assets.

How does Liability Insurance protect your business?

Professionals face a broad variety of risks simply in their line of work. Consultants work closely with clients in many important aspects of their businesses. A simple innocent mistake can have a huge impact on the organization’s operations. Therefore, the nature of a Consultant’s work usually puts them at a higher risk for a liability lawsuit than some other professions.

For example, accounting consultants could face the possibility of making a data entry error that negatively impacts accounts payable including employee payroll, while marketing consultants may face the possibility of defamation or slander lawsuits. Both of these circumstances could both result in a disgruntled customer filing a lawsuit.

it is important to note that your risk isn’t based on the probability of you losing a liability lawsuit, but instead the prospect of a customer bringing a liability lawsuit against you. The financial impact of defending your business against a lawsuit can have various consequences on your business, including draining your bank account and interrupting the operations. By securing liability insurance, you will have some comfort knowing there are financial resources available should your consulting firm face litigation.

What about business contracts?

Many consultants believe that the various business agreements that they have in place will protect them from litigation. In reality, it’s rare that contract language will completely excuse you from being named as the defendant in a liability lawsuit. For example, maybe your standard contract states that in no case can your consulting firm be held responsible for damages that exceed the money earned from the project. It is possible that this language will protect you, however sometimes this may not be the case. It is very likely that you will need to wait for an actual liability lawsuit to develop to know this for sure.

Liability insurance may save your consulting business thousands of dollars. This is especially true because a contract isn’t going to pay your legal defense and a possible lawsuit settlement to the plaintiff, whereas liability insurance does provide cover in the unfortunate event these incidents do affect the running of your business.

Types of Liability Cover

Commercial General Liability (CGL) insurance can protect your consulting business in the event a client files a lawsuit claiming you caused them a financial loss or an interruption in service. General liability insurance can also cover you for things such as a client falling over a box in your home office and breaking his/her leg. This can also apply if you work as an IT consultant and accidentally spill coffee on your customer’s network server. Additionally, general liability will defend your consulting business if it is named as a third-party in a lawsuit.

Professional liability insurance is also known as Errors & Omissions (E&O) insurance. This type of insurance is recommended if you provide professional services for a fee (as do consultants, accountants, and lawyers). Professional liability insurance is meant to protect you if a client files a liability lawsuit against your business for not living up to your professional obligations. This cover will safeguard your business against any claims for unintentional mistakes, inaccurate advice, violations of good faith, and general negligence.

What is the amount of cover available for my business?

Many consultants can purchase liability insurance for less than ten dollars a day. Most liability limits vary between $500,000 and $4 million. It is also important to note that your business is responsible for any costs that surpass the liability limit on your policy.

For example, if your policy limit is $500,000 and you are unlucky enough to lose a civil case for $1,000,000, then you will have to cover the remaining $500,000 that is due to the plaintiff. Furthermore, if your business is not able to cover the remaining amount owed (beyond your liability limits) then you will be personally responsible.

This is why it is important to remember that choosing the cheapest premium may not be the best option for your business. Instead, assessing all the risks to your consulting business can realistically can save you from an unfortunate situation should such an unforeseeable event occur.