What Is Self-Employed Liability Insurance?

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Self-employed liability insurance protects freelancers, contractors, and other small business owners from financial losses if they are sued by their clients or business associates for unsatisfactory work. The business owner’s legal expenses and the costs of any judgments are covered by this insurance.

Definition and Examples of Self-Employed Liability Insurance

Self-employed liability insurance is an insurance policy designed to protect freelancers, contractors, and small business owners from losses if they are sued by their clients. This insurance covers claims for clients’ economic or financial losses resulting from the business owner’s negligence, professional errors, or omissions.

  • Alternate names: professional liability insurance, errors and omissions insurance, professional indemnity insurance
  • Acronym: E&O

Some examples of self-employed liability insurance claims include:

  • A patient suing a doctor or medical professional for misdiagnosing their illness
  • A client suing a lawyer for neglecting to file legal paperwork by an established deadline
  • A business owner suing a partner for not fulfilling their part of a contract
  • A client suing an accountant for making a costly mistake on the client’s tax filing

In each of these cases, E&O insurance would pay the cost of the business owner’s legal defense against the claims and also pay any resulting judgments, up to the limit of the policy.

How Self-Employed Liability Insurance Works

Small businesses are vulnerable to many potential sources of losses. Self-employed liability insurance protects business owners from one of the unexpected costs associated with running their businesses: lawsuits.

Operating a business without E&O insurance puts the owner(s) at risk of being held personally responsible for breaching a contract, committing malpractice, or accidentally injuring someone. If someone sues and obtains a judgment against the business owner, it could result in the loss of the owner’s personal bank accounts and property.

In addition to negligence, some other issues covered by E&O insurance include violation of good faith and fair dealing, inaccurate advice, and misrepresentation. Generally, the coverage does not extend to non-financial losses or losses caused by intentional, criminal, or dishonest acts.


Some states require that attorneys, doctors, and other professionals have E&O insurance. However, many independent business owners can benefit from having this protection regardless of state laws. Some professionals who may benefit include freelancers, consultants, accountants, lawyers, health care workers, architects, engineers, home inspectors, and real estate agents.

For example, say a real estate agent with E&O insurance sells a house to a young couple. After the sale is finalized, the couple discovers there are serious issues with the property. They decide to sue the agent for failing to disclose the problems. If the courts decide that the agent failed to use “reasonable care” and the couple’s lawsuit is successful, the insurance would cover the agent’s court costs and the amount of the judgment.

After purchasing a policy, business owners should review them once a year to see if adjustments are needed due to changing circumstances.

Types of Self-Employed Liability Insurance

There are two types of self-employed liability insurance policies:

  • Claims-made: The most common type of E&O insurance policy, claims-made requires that the policy be in an active state when the alleged event takes place, as well as when the lawsuit is filed. A claim can only be paid if both these qualifications are met.
  • Occurrence: The second type of policy, called an “occurrence” policy, will cover events that happened during the policy’s period of coverage even if the lawsuit is filed after the policy ends. This would be suitable for someone who has retired from their business or changed their career.


D&O liability insurance is a type of specialized liability insurance that covers directors and officers of for-profit businesses, privately held firms, nonprofit organizations, and educational institutions. The policies cover claims resulting from managerial decisions that may result in adverse financial consequences.

Key Takeaways

  • Self-employed liability insurance policies help protect businesses from losses incurred by malpractice and neglect lawsuits.
  • Professionals who might consider self-employed liability insurance include freelancers, consultants, health care workers, and lawyers.
  • The two basic types of policies are claims-made and occurrence; self-employed liability insurance policies are generally claims-made.
  • With claims-made policies, the lawsuit must be filed while the policy is active.

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  1. SCORE. “What Solopreneurs Should Know About Business Insurance.”

  2. Small Business Administration. “Get Business Insurance.”

  3. American College of Physicians. “Claims-Made vs. Occurrence Malpractice Insurance.”

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