Business insurance for freelancers: what do you really need?

General liability or professional liability?

This is the distinction that most often goes wrong. General liability insurance covers damage to property or people: you drop a ladder on the client's car, or a visitor trips over your cable. Professional liability insurance covers financial loss caused by a mistake in your work: wrong advice, a design error, a missed deadline with financial consequences. If you work with your hands the first matters most; if you deliver advice, design or software it's the second. Many freelancers have one and assume everything is covered.

What other policies are there?

Legal expenses insurance for entrepreneurs helps with disputes with clients, suppliers or your landlord, and with collecting unpaid invoices. Contents and goods insurance covers your tools, stock and equipment, including in your van if you add that cover. If you work from home, check whether your business items fall under your private contents policy; often that's only up to a small amount, or not at all. And then there's disability insurance, which protects your income if you're the one who drops out.

Are the premiums deductible?

Premiums for business policies are ordinary business costs: liability, legal expenses, contents and your company vehicle are deducted from your profit. Disability insurance works differently. It isn't a business expense but a personal one: you deduct the premium as an expenditure for an income provision in your income tax return, and any payout is taxed later. The effect is comparable, but its place in your return is different.

Mind the VAT: insurance premiums are exempt from VAT, so there's nothing to reclaim there. Instead, most non-life policies carry insurance premium tax. That isn't VAT and can't be offset, but the amount does simply count as part of your deductible costs.

What do you really need?

Start with the question of which setback you couldn't absorb yourself. Being unable to work through illness is the biggest risk for most freelancers, followed by a liability claim. Small risks, such as a broken laptop, are usually better absorbed from your buffer than insured. Look at your contracts too: clients increasingly require liability cover with a minimum insured amount, and in some sectors insurance is mandatory.

What's sensible to do?

Go through your policies once a year, because cover that suited your start no longer suits a grown business. Check in particular whether your insured amounts are still right and whether your activities still fall within the policy description; working outside that description means no cover in practice. When preparing your annual figures we often spot at a glance which items are missing or duplicated.