New to IT Consulting? Protect Your Business with Small Business Liability Insurance
Starting a new business is exciting. You’re calling the shots now. However, you still have to answer to someone – your clients.
Installing software, creating a new app, or setting up an employee portal may not seem that risky. But if and when something goes wrong, your clients could sue, leaving you exposed to financial risk.
The High Cost of Liability Lawsuits
Contemplating worst-case scenarios isn’t the most fun part of starting your own business, but it’s important to be prepared because a lawsuit can pose a significant financial burden for a small IT business.
A professional liability claim, such as a breach of contract or missed deadline, could present high costs. According to a report by the Court Statistics Project, the average breach of contract case costs $91,000. That’s certainly not chump change, but seems like a relative bargain-basement steal when compared to the potential expense posed by a data breach claim.
A recent study [PDF] released by Kaspersky Labs, an antivirus software and Internet security provider, found that…
- The average small business data breach costs $38,000.
- Indirect recovery costs total an additional $8,000.
Protect Your Bottom Line with Small Business Professional Liability Insurance
One way to safeguard your business assets is by choosing the right kind of IT insurance coverage. Depending on the structure of your business and the exact type of work you do, your choices will vary, but there are a few basic policies that can help you manage your risk:
- General Liability Insurance. This policy offers coverage for third-party lawsuits over bodily injury, property damage, and advertising injury. Lawyer Nace Naumoski (@nacenaumoski), partner at Stewart Bernstiel Rebar & Smith describes it as “your general meat-and-potatoes commercial policy.” Check out “6 IT Consulting Risks that General Liability Can Help Manage” for more details.
- Business Property Insurance. With this policy, “you’ll have premises coverage, and you would also have coverage for a loss of equipment,” says Bob Zeglarski (@BizLawyer), founder of Cutwater Law, PLLC (@CutwaterLaw). This means your physical office and all your business “stuff,” like computers, hard drives, equipment, etc., would all be covered.
- Errors & Omissions Insurance. Also known as Professional Liability Insurance, technology E&O covers mistakes or errors made while rendering your services. It can also help protect you from the cost of frivolous lawsuits. Unfortunately, some people choose to sue their vendors when anything goes wrong, regardless of who is actually at fault.
What Will Liability Insurance Cost Me?
The good news for IT consultants is that insurers consider your industry as relatively low risk. Here’s what you can expect to pay, on average, for insurance coverage:
- General Liability Insurance usually costs between $500 and $900 per year. A policy can provide $1 million in coverage for each lawsuit and up to $2 million in total coverage for the policy’s term (which is typically one year).
- Errors & Omissions Insurance for consultants varies in cost depending on the size of your business. If you’re a freelance IT consultant, you can expect to pay somewhere between $1,000 and $1,500 per year.
- A Business Owner’s Policy, or BOP Insurance, combines General Liability and Property Insurance into one affordable bundle for very small, low-risk IT businesses. This typically saves you money and earns you a gold star as a savvy shopper.
To learn more about the cost of liability insurance, see our business insurance cost analysis.