Are you out of a job and left trying to figure out what’s next? If you’ve landed in freelance territory (whether by choice or by accident) you’re definitely not alone. In fact, more people than ever are taking the leap into freelancing after a layoff, thanks to a tough job market and shifting career paths.
But here’s the thing to remember: when you freelance, you’re not just the talent. You’re also the legal department, the finance team, and the head of operations. That means a whole lot of new responsibilities have just landed on your plate, especially around risk and protection.
This guide breaks it all down for you. You’ll learn what freelancing really means for your liability, why freelance insurance is one of the first things you should put in place, how to properly price your services, and why contracts and coverage go hand in hand.
You’ve got this, and we’ve got your back.
When you worked for a company, they had you covered with legal teams, IT departments, and insurance policies. As a freelancer, that safety net completely disappears, and now you have to be your own safety net.
Whether you’re giving advice, managing client data, or sending over finished work, you’re the one that’s on the hook if something goes wrong. Something as simple as a missed deadline, a miscommunication, or a small security issue could quickly turn into a very costly legal situation, even if you didn’t actually do anything wrong.
That’s where freelance insurance becomes very important. You’ll want to look into professional liability (also known as E&O), general liability, and cyber coverage if you use online tools to manage any kind of client info or to process payments. These policies are built specifically to cover legal fees, settlements, and damages that can come from the “what ifs” of running your own show. Because when you’re the boss, protecting yourself isn’t optional. It’s all just part of the job.
When you start freelancing, one of the first big questions you are probably going to ask is: do I need an LLC or S-Corp? The short answer is, it depends on your goals. The longer answer is, it depends on your income level and how sustainable you feel it is. And, as a disclaimer, we are not legal or tax professionals.
Forming an LLC (Limited Liability Company) gives you some separation between your personal and business finances. It can help protect your personal assets if your business is sued, but it’s not an impenetrable force field. You’re still responsible for all of the work you do, and you still need insurance. With a single-member LLC, you are still taxed as a self-employed individual.
An S-Corp is a tax status that you can elect if your income hits a certain level. It can potentially lower your self-employment tax, but it adds more paperwork and more payroll rules. In this case, you should talk to a tax professional to decide if it’s worth it, particularly because you cannot change your tax status back for a certain amount of time if you elect to file as an S-corp. The AFWA (Accounting and Financial Women’s Alliance) is a great resource that can help clarify all of your options and advise on how what kind of support you need for each business structure option.
And remember, whether you’re a sole proprietor, LLC, or S-Corp, you still need freelance insurance. Having a legal structure in place helps keep personal and business finances separate, but it’s your insurance policy that will really protect you.
Now that you’re freelancing, you’re not just doing the work,you’re running the whole show! That means it’s time to separate your personal and business finances like a pro.
The first thing you should do is set up a business bank account. Track every dollar that is coming in and going out, and save 25–30% of your income for taxes. Even if you’re not raking it in yet, those quarterly tax payments can sneak up quickly.
You should also use basic accounting tools (there are plenty of low-cost or free options out there like Wave and Quickbooks) to log your income and expenses. Not only is this going to help you stay on top of things, but having clear records can make all the difference in a legal dispute or in the case of an audit.
Running lean and messy might work for the short-term, but real protection starts with clean books and a solid freelance insurance plan to match.
CoverHound Tip: Looking for a way to prevent overpayment on taxes as a growing business? While 25-30% is the golden rule for how much you should be setting aside from every paycheck, working with a CPA or tax strategist can be a huge benefit to helping you sustainably manage your finances – including tax savings.
It’s important to remember that when you set your rates, you’re not just covering your time. You’re also covering your health insurance, paid time off, retirement contributions, administrative hours, and the occasional sick day.
Freelancers don’t get any kind of employer perks. That means it’s on you to build those costs into your pricing from the very start. If you’re charging the same rate you made as a salaried employee, you’re probably short-changing yourself.
And here’s something a lot of new freelancers aren’t prepared for: one unexpected expense (like getting sued over a client dispute) can drain your savings in no time flat. That’s where a good freelance insurance bundle can step in to help protect the income you’ve worked so hard to build, so those benefits you’re budgeting for stay in your pocket, right where they belong.
Every freelance gig, no matter how big or small, should start with a signed contract.
A clear contract won’t prevent someone from taking legal action, but it can seriously limit the fallout if things don’t go exactly as planned.
Make sure your agreements include important pieces of information like scope of work, payment terms, dispute resolution methods, and indemnification clauses. These details are going to help set the expectations early on and will ensure everyone is on the same page.
A strong contract protects both you and your client, but just like a business structure, it won’t prevent a lawsuit. You can still end up in a legal mess even if you followed the contract to the letter. That’s why having freelance insurance is such an important backup. It gives you the support you need when paperwork alone doesn’t.
Freelancing can be amazing! It gives you flexibility, control, and room to grow, but it also means carrying the weight of risk on your own shoulders. Whether you’re working from your kitchen table or running a full-blown consultancy, having the right protections in place can make all the difference.
That means putting in place all of the legal basics like contracts, smart financial habits, and yes, freelance insurance that protects your work, your income, and your peace of mind.
If you’re ready to start this next chapter with confidence, CoverHound makes it easy. You can compare real quotes, see your options side-by-side, and find coverage that fits your business reality today, and scales with you tomorrow.
Do you want to feel more confident as you freelance? Compare real quotes with CoverHound and find coverage that fits you and your new freelancing needs.
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Insurance shopping simplified
