What kind of business insurance do you need as a 1099?

When I did my first sub-contracting gig with my employer, I was a little panicked that I would have to buy business insurance. I figured that I wouldn’t need it since I was just a solo operation.

I tried to negotiate my way out of getting it, but was unsuccessful. Fortunately I discovered that getting business insurance is very straight forward. As a general rule, if you are a customer, companies want to make it easy to buy from them!

However, prime contracts sometimes pass down onerous insurance coverage requirements. I have seen a few that requested $5,000,000 in umbrella/ excess liability insurance! What is the likelihood that you will cause $5 million in damage above and beyond what your other policies cover?

The good thing is that insurance requirements can be negotiated to fairly reasonable amounts. Here are some typical insurance requirements that I’ve seen in my sub-contracts:

• General Commercial Liability: $1 million per occurrence, $2 million aggregate

• Business Automobile Liability: $1 million combined single limit

• Professional Liability: $1 million

• Cyber Security: $1 million

• Umbrella coverage: $2 million

• Workers comp: $1 million

Note that these requirements are for sub-contracts in which I am designated as a sub-contracting company rather than as an independent consultant. I mention this only because as a solo 1099 consultant, the prime may have lower insurance coverage requirements.

Either way, there are two things you should attempt to negotiate away: the types of insurance required and the amounts.

For example, if you are going to be working on the government client site exclusively to perform your work, you can ask the prime to waive the cyber security requirement since you won’t be accessing government data off premises.

Workers comp is generally not required if you are self-employed with no employees. In Virginia, it is only required when the company has 3 employees (including owners).

I don’t think you will get away with negotiating away general commercial liability, automobile liability, and professional liability. Those are pretty standard.

However, these policies are not that expensive, assuming you are in an office type of setting. I looked up my records and in 2016, my general commercial, automobile, and professional liability amounts were under $1,000.

For my current company, Custom Analysis LLC, we have significantly more coverage (including cyber, umbrella, and workers comp) and in 2019 that was under $2,000 for the year.

If you can keep your annual insurance costs under $1,000 as a solo 1099, I think you’re in good shape. You can do that by lowering or eliminating  insurance amounts or requirements by the prime and then shop around.

Once you purchase insurance, the prime is also going to want a Certificate of Insurance (COI) with a waiver of subrogation. This is standard. You can ask your insurance broker/agent for this. The waiver of subrogation just means you won't hold the prime liable for anything that may trigger an insurance claim. It will be noted on the COI.

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If you need an insurance broker referral e-mail me at dale@1099fedhub.com. Mine is very responsive which is a key quality I look for.

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If you have questions feel free to reach out to me directly at dale@1099fedhub.com. I can also add you to my informal mailing list in case I have updates or news or whatever.

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This article is an excerpt from Chapter 10 (How to complete the paperwork for your first 1099 sub-contract) of my book.

You can read more about it here:

Going 1099: How to become a solo federal sub-contractor and gain control of your working life, earn more money and unlock more free time