In a recent coffee chat over at The Hive, the question of business insurance came up. Which nonprofit consultants need insurance and why?
During the conversation, our informal survey revealed most consultants don’t have business-specific insurance coverage. To help identify best practices—and support our community—we at Funding for Good decided to investigate.
Please do note that, while we are nonprofit consulting experts, we are not lawyers or licensed insurance agents!
Different types of insurance for consulting businesses
First, it’s worth breaking down the main types of insurance consulting businesses may carry.
Since we’re not insurance brokers, we read through dozens of policy descriptions to distill the basics of the most common policies for consultants, including what they cover and when you might need them.
- Professional liability insurance – Protects your business if sued for negligence, such as mistakes or bad advice. This type of policy may also be called Errors and Omissions or E&O insurance.
- General liability insurance – Covers costs in case your business harms a third party in certain ways, such as bodily injury, property damage, copyright infringement, or reputational harm.
- Cyber liability insurance – Protects you from liability in the case of a cyber-attack or data breach, particularly useful where private and confidential client information may be exposed.
- Business property insurance – Protects items like equipment, furniture, and supplies from damage, loss, and theft. There are different variations of this coverage depending on whether you have a home office or a separate workplace. For consultants with only home offices, your homeowners’ or renters’ insurance may serve this purpose. If not, it may be possible to add an endorsement to your existing policy.
- Workers’ compensation insurance – Workers’ compensation insurance is governed by state law. In most states, if your business has one or more employees on payroll, then workers’ comp is required. Many nonprofit consultants don’t have employees and thus, in most states, are not required to carry workers’ comp insurance. Because workers’ comp covers costs and lost income if someone is injured or disabled on the job, some self-employed people choose to purchase disability insurance.
- Commercial auto insurance or business vehicle insurance – Most states require drivers to have personal auto insurance. However, personal auto insurance may not cover accidents when using your vehicle for business purposes. This is where you will want to be sure you read the fine print on your existing policy.
- Business Owner’s Policy – Sometimes, multiple types of insurance—such as professional liability, general liability, and business property coverage—are bundled into a Business Owner’s Policy or BOP.
Figuring out which insurance you need as a consultant
There is no one-size-fits-all answer regarding what insurance nonprofit consultants need. Many consultants operate for decades without taking out business insurance, except as required by state law. Other consultants, especially those working in HR, IT, finance, and accounting, take out robust insurance policies from day one.
To think it through, here are some questions to consider:
- Do you have access to extensive private and personal client data?
- Do you have access to clients’ confidential financial information?
- Do you have one or more employees on payroll?
- Are you advising clients on high-stakes decisions that could have massive financial ramifications?
- Are you risk-averse and generally prefer to have more insurance protection than less?
- Do clients come to your office frequently?
- Do you have costly equipment in your office (at your home or otherwise) that isn’t covered by homeowners’ or renters’ insurance?
At the end of the day, the decision on which coverage to take out is individual. But hopefully, this guide provides some insight into how to evaluate the question for yourself.