You are the prime's insurance policy

Every month my wife and I pay about $100 each for term life insurance.

If either of us kick the bucket in the next 25 years, our beneficiaries will receive $1.5 million.

There is a low probability of either of us dying, so is it a waste of money? Should we just be going out on an extra date night every month or add to our vacation fund?

No, because we want to reduce the impact a death would have on our family. We want to make sure that our family has enough money to pay the bills and the resources to continue living a normal lifestyle, at least for a while. It gives my wife and me peace of mind.

Similarly, a prime might bring you on as a 1099 not because of your good looks or particular set of skills. They could bring you on to reduce risk.

For example, if a prime has a position vacancy on a contract that only has three months left and they don't know if they'll win the follow on work, hiring an employee is risky.

In the short term, it might be more profitable, but if they don't win the re-compete, they now have to pay the salary of someone who they don't have billable work for. They could lose a lot of money.

Or, they would have to fire the person and hurt their company's reputation.

By hiring a 1099, in exchange for lower profitability (due to the higher pay for the 1099), they deliver the required service to the customer and avoid the risk of losing money on a W2 employee or having to fire one.

The moral of the story is that you don't have to be a super genius to get a 1099 gig. Sometime's you just have to be good enough to reduce a prime's risk. You can be the insurance policy.