As an IT freelancer you arrange your own safety net, and insurance is part of that. But which do you really need, and which are an expensive superfluity? Walking around uninsured is risky, but insuring yourself blindly costs needlessly much.
In this article you will learn which insurances are important for an IT freelancer, which are optional, and what to watch for when choosing. No exact premiums, because those depend on your situation, but a clear overview so you make a good trade-off.
This blog is for IT professionals working or starting as freelancers: cloud, network, DevOps and security engineers.
One thing first: I am not an insurance advisor. This is general information, not insurance advice. For what is needed and wise in your situation, and at what premium, go to an independent advisor.
Which insurances are most important for an IT freelancer?
The most important are disability insurance and professional or business liability insurance. The first cushions your income if you cannot work, the second covers damage for which you are liable. For most IT freelancers, these two form the core of good coverage.
In addition, there are optional insurances that can be useful depending on your situation, such as legal expenses insurance. Which you need depends on your risks, your assignments and your personal situation. Below I walk through the main ones.
Disability insurance (AOV)
Disability insurance cushions your income if illness or an accident stops you working. For a freelancer this is often the most important insurance, because you have no employer continuing your pay. If you drop out without it, your income falls away immediately.
It is also the most expensive, which makes many freelancers hesitate. Still, the risk of long-term incapacity is too great to ignore. There are alternatives and variants, like a bread fund or a policy with a longer waiting period to lower the premium. Get good advice on this; it is a choice with major consequences.
Professional and business liability insurance
These insurances cover damage for which you are liable. Professional liability insurance covers damage from mistakes in your work, for example an advice or configuration that goes wrong. Business liability insurance covers damage to people or property, separate from your work content.
For IT professionals, professional liability in particular is relevant, because your work can have major financial consequences if something goes wrong. Some clients even require this insurance before working with you. It belongs to professional entrepreneurship and is usually relatively affordable.
Which insurances are optional?
Besides the core, there are insurances that are useful depending on your situation. They are not needed by everyone, but can be valuable in specific cases. Weigh them against your own risks.
- Legal expenses insurance: handy for disputes with clients
- Cyber insurance: relevant if you work with sensitive data
- Equipment and business property insurance: for expensive own equipment
- Supplementary health coverage, depending on your situation
The art is to insure against risks you cannot bear yourself, and not against small risks you can easily absorb. An expensive insurance for a small risk is wasted money. So look at the impact, not just the probability.
How do you choose the right insurances without overpaying?
Start with your biggest risks: what happens if you drop out long-term or make an expensive mistake? Cover those first. Then compare providers and terms, and watch the coverage and waiting period, not just the premium. A cheap insurance that does not pay out when it should is worthless.
A few principles that help:
- Insure against what you cannot bear yourself, not against small risks
- Watch the coverage and exclusions, not just the premium
- Build the premiums into your hourly rate; they are real business costs
- Get advice from an independent party, not from one provider
- Reassess your insurances when your situation changes
Remember that insurances are part of your cost price as an entrepreneur. Factor them into your rate, like tax and pension. That way you are not caught by surprise and still keep enough. Want to know which other cost items play a role? Read our blog on what you keep net as an IT freelancer.
Frequently asked questions about insurance for IT freelancers
Is disability insurance mandatory?
At present, disability insurance is not generally mandatory for freelancers, although legislation is in development around an insurance obligation. Mandatory or not, the risk of long-term incapacity is great. Check the current state and get advice on what is wise in your situation.
Do I really need professional liability insurance?
For most IT professionals it is strongly recommended, because mistakes in your work can cause major financial damage. Some clients even require it. It is usually relatively affordable and belongs to professional entrepreneurship. Whether it is strictly mandatory depends on your assignments.
What does insurance cost for an IT freelancer?
That varies strongly per insurance, coverage and personal situation, so naming an exact amount makes little sense. Disability insurance is usually the most expensive item. Request quotes from several providers and get advice, so you get good coverage at a fitting premium.
Can I deduct the premiums from tax?
Some business insurances are deductible as business costs, others are not, and specific rules apply to disability insurance. This is exactly something to go through with an accountant, because it depends on the type of insurance and your situation. Do not rely on assumptions here.
How do I build insurance costs into my rate?
Add your annual premiums to your other business costs and convert them back to an hourly rate, based on your billable hours. That way your rate covers your insurances. An accountant can help you calculate this well, so you are not unknowingly too low.
Conclusion: insure against what you cannot bear yourself
As an IT freelancer, disability insurance and professional liability insurance form the core of your coverage. Optional insurances you weigh against your own risks. The rule: insure against what you cannot absorb yourself, and factor the premiums into your rate.
For whom is this most urgent? For freelancers just starting who still have to set up their safety net. For whom less? For those already well insured, but it is always good to periodically reassess your coverage.
My advice: cover your biggest risks first, compare on coverage and not just premium, and get advice from an independent party. Well-insured entrepreneurship gives peace of mind.
Want to spar about your position as an IT freelancer?
Want to spar about how to build a stable, professional freelance practice? Plan a no-obligation call with me. I think along peer-to-peer. For insurance advice, I refer you to a specialist.
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Note: this article is general information, not insurance or tax advice. For your personal situation, consult an independent insurance advisor or accountant. Legislation on an insurance obligation for freelancers is in development; check the current state.
