Dave Donaldson

If you are looking to go independent, one area to get very knowledgeable in is insurance. Now, you'd think since I spent 5 1/2 years at an insurance company (and not to mention my initial major in college was actuary science) I would know a thing or two about insurance. But I don't. All I know is I send a company money every month so that when something bad happens to me or my family, I get monetary coverage for the incident. And for most people, that's all you need to know, but as someone going independent, knowing more details about insurance will go a long way, especially at contract time.

Below is a list of insurances you'll need to check into. I give a brief description of each, but I strongly suggest talking to your insurance agent to get more info (afterall, that's what I did). They are the experts with this stuff, so let them do their job and guide you in the right direction with regards to coverage amounts, limits, etc. One thing that you'll find is that most of these insurances are fairly inexpensive for us computer-y geeks, which makes sense because we don't have a lot of physical labor involved and we're usually not found working on the steel beams of a 100-story skyscraper.

Worker's Compensation

OK, everyone probably knows what this is, but what you might not know is that as an independent consultant (i.e. a company of one), most states don't require you to carry it. States only require you to carry worker's comp as soon as you hire your first employee. The catch here is that some companies you'll contract with (either direct or through subcontracting) will require it, so you might want to get it anyway. The good thing is that for us geeks it's pretty cheap and you might be able to get it really cheap from the state itself instead of a private insurance company.

Employer's Liability

This is basically an add-on to worker's comp. For anything that worker's comp doesn't cover, this insurance should do it. Usually coverage is around the $500,000 mark.

Comprehensive General Liability

This is your blanket protection policy for covering things like products, operations, fire damage, medical expense, and employee benefits. This is typically written for $1,000,000 per occurrence, and usually covering two occurrences per year.

Employee Dishonesty

This was a new one for me because I just found it odd. It's there to cover those instances where you lied about something that caused bad things to happen to your client, such as lost sales, a drop in customer satisfaction ratings, or higher bug counts. The coverage limits on this vary, so check with your agent.

Comprehensive Automobile Liability

I'm sure we've all got auto insurance, but this isn't talking about your personal policy; this says that you need to get a commercial policy for whatever vehicle you're going to use as an independent. An important item of note here is that a commercial auto policy is rated differently than a personal auto policy. Meaning, your premium could go up, down, or remain the same. For example, I had to switch my car from a personal policy to a commercial policy with a higher coverage limit of $1,000,000. That added $600/year to my insurance cost for my car. The flip side is that I was able to remove my car from our personal auto policy and keep the same coverage (except for the higher limit). This saved us $400/year on our personal auto policy, which equates to an increase of $200/year for me to switch my car to a commercial policy with a $1,000,000 limit. Not too bad.

Professional Liability (Errors & Ommissions)

This is kind of related to the Employee Dishonesty insurance, but for a different reason. You need to acquire this insurance for those times where you royaly screwed up a job that cost your client some serious cash. Not because you lied about anything, but because you just messed up big time and the client wants to get some of that lost revenue back from you, the person primarily responsible. Coverage for this starts out around $1,000,000 and is the most expensive of the insurances, typically around $1,000-$1,500 per year.

So now that you've got the basic gist of the insurances you'll need, don't rush out and purchase any of these policies just yet. The contracts you'll sign will dictate which ones you need and how much coverage to obtain. For instance, I'm getting ready to start at a client next week where the contract requires all the above insurances except the Professional Liability. So, as is common sense, read any contract carefully and work with your insurance agent to properly understand any insurance requirements that might be in there.