Max didn’t plan to become a business consultant. He just has a knack for figuring out what’s broken or missing, and how to fix it. A favor for a friend’s small business turned into a few side gigs, then full-time consulting. Before he knew it, he was “the guy who can save your Q4.”
Now it’s time to get serious about setting up a business. But there’s one thing Max keeps hearing about but doesn’t fully understand: insurance. Does he actually need it, and what does business consultant insurance cover, anyway?
Let’s follow Max as he figures out how to safely reduce the risks of doing business with consultant insurance.
Certification & Expertise: What Are the Risks?
Step 1 of Max’s research is the legal side of starting a business: licenses and insurance. Max learns he doesn’t need a certification or insurance to be a consultant, but doing the bare minimum won’t make him stand out, either.
His research revealed enough recent legal action against business consulting firms to make him think twice about skipping steps. For example:
- This $650 million lawsuit against McKinsey for advice that resulted in a crime
- This $32 million lawsuit against Accenture for failure to deliver
Missed deadlines, mistaken advice, and misunderstood strategies can lead to major fallout for a client. Max is no McKinsey, but even one much smaller lawsuit would leave his business dead in the water.
To beef up his credentials and protect his advice, Max decides to buy business consultant insurance coverage and pursue PMP certification.
Professional Risks for Consultants
Consultants are hired to solve expensive problems. That means that when something goes sideways, the finger often points back to you. Lawsuits due to poor advice, missed deliverables, and failure to meet expectations are risks insurance and professional development can help you avoid.
It Pays to Be Prepared
Lawsuits against small businesses and one-person consulting firms can still have a high pricetag, even if it wasn’t your fault. 90% of small businesses pay to settle frivolous lawsuits to avoid even higher court costs, like these:
- A client sues a consultant after a tech implementation fails, claiming the consultant gave incorrect advice.
Estimated claim cost: $128,000
- A consultant is accused of breaching contract terms after a missed deadline disrupts the client’s product launch.
Estimated claim cost: $84,500
*All estimates are based on internal data and AI-generated modeling. Read your policy carefully to understand your specific coverage.
How to Avoid Professional Risks
- Use written contracts that clearly outline deliverables, scope, and responsibilities.
- Communicate often to manage client expectations around deadlines and realistic goals.
- Stay current in your field with continuing education and certifications. Not only do they set you apart in a competitive market, but a solid foundation in business management can also limit mistakes.
- Buy business consultant insurance that includes professional liability. Also called errors & omissions, this coverage protects against negligence claims, bad advice, or failure to deliver. If you get sued, professional liability can help with your defense and pay for a lawyer, court fees, settlements, and more.
Business Setup & Client Meetings: What Are the Risks?
Max rents a co-working space to meet clients and eventually host workshops. He doubts he would ever get sued for injuries — how dangerous could talking to clients be? — but his landlord requires general liability insurance. He chooses an insurance policy that includes it to meet his minimum requirement.
A few months into his new business, he’s glad he did. A client tripped over a power cord during a meeting in Max’s office and messed up their knee. The client sued him to cover the medical bills and physical therapy.
Fortunately, Max’s business consultant insurance coverage also includes general liability, so it helped pay his costs.
Physical & Operational Risks
Even consultants who don’t own a storefront can face risks around physical injuries and property damage to others if they meet clients in person or work on-site.
You might also be required to present proof of general liability insurance to landlords to cover potential fire damage to rental spaces and personal injury lawsuits. Why? Because landlords know these kinds of accidents happen more often than you think.
It Pays to Be Prepared
- A client trips at a consultant’s office and sues for injuries.
Estimated claim cost: $72,000
- A consultant spills coffee on a client’s laptop during an on-site meeting.
Estimated claim cost: $11,000
How to Avoid General Liability Risks
- Keep your workspaces clear of hazards and practice good site safety.
- Maintain a written incident log in case something does happen. Presenting documentation can help your defense in court if you get sued.
- Get general liability insurance to cover third-party injury, property damage, and personal or advertising injury (like defamation or copyright issues — more on that in just a minute).
Contracts, Privacy & Communication: What Are the Risks?
Some clients are easier to work with than others. Today, a past client emailed Max angrily, claiming Max shared sensitive company data during a networking event. While Max swears he didn’t, the client threatens legal action for breach of confidentiality.
Fortunately, Max’s business consultant insurance includes general liability coverage, protecting him against personal and advertising injury. Now he’s really glad he opted for insurance.
Confidentiality & Reputation Risks
Consultants handle private data and offer insights that could be considered proprietary, so a confidentiality breach can have serious consequences.
Online advertising (especially if you DIY to save money) may also lead to marketing mistakes like misusing copyrighted material or making false claims. Even unintentional slip-ups can land you in hot water legally.
It Pays to Be Prepared
- A consultant is sued for sharing confidential information about one client in a presentation to another.
Estimated claim cost: $60,000
- A competitor accuses a consultant of defamation due to a recent blog post comparing their work.
Estimated claim cost: $95,000
How to Avoid Communication & Confidentiality Risks
- Understand the NDAs and confidentiality clauses in client agreements and always work with a written contract.
- Avoid using client names or project details in promotional materials unless approved.
- Make sure your consultant insurance includes personal and advertising injury coverage under general liability to handle advertising accidents.
Cyber, Tech, & Online Strategy: What Are the Risks?
Max offers virtual strategy sessions and uses client management software to track his projects. After accidentally clicking a phishing link in an email, his system was breached, and sensitive client files were compromised.
Knowing he would offer online consultations and store client records, Max had added cyber liability coverage to his consultant insurance. His policy helped him pay for the data breach lawsuit and protect his reputation by minimizing damage to his business and his client.
Cyber & Tech Risks
Most consultants use digital platforms daily to send invoices, store and share files, host meetings, and run their business. That’s a lot of online activity to protect.
Since you become legally responsible for any client data you store, you are vulnerable to cyberattacks, data breaches, and tech errors. Even broken or stolen equipment can set back your productivity.
It Pays to Be Prepared
- A consultant’s laptop is hacked, and client data is leaked. The client files a data breach lawsuit against the consultant.
Estimated claim cost: $135,000
- A ransomware attack locks down all of a consultant’s project files until they make a payment.
Estimated claim cost: $45,000
How to Avoid Cyber Risks
- Secure client data using industry best practices like two-factor authentication, data encryption, trusted payment portals, and updated software. Ensure you’re also up-to-date on spotting phishing emails and social engineering attacks.
- Buy cyber liability insurance as an add-on to your business consultant policy. This coverage protects against ransomware, data breaches, and other cyberattacks.
- Consider adding tools and equipment coverage (aka inland marine) to your policy to cover repairs or replacements to laptops, streaming equipment, and other business tech.
4 Ways to Limit or Cover Your Consulting Business Risks
Researching what can go wrong made Max realize building strategies isn’t just for clients. He needs to identify and plan for risks to his own business for long-term success.
There are four ways to minimize liabilities as a consultant, and it all comes down to knowing which category each risk falls into: avoid, reduce, transfer, or accept.
Avoid — bypass risks using best practices
- Create thorough contracts and service agreements to set expectations and clarify deliverables.
- Don’t take jobs outside your expertise or with deadlines you know you can’t meet.
- Avoid using client names or materials for promotion, unless given permission.
Reduce — limit risks with safe boundaries
- Limit the threat of data breaches with strong cybersecurity measures and secure digital storage.
- Get certified in your niche to stay updated on best practices and limit the risk of bad advice.
- Keep your meeting location free of hazards to limit the chance of client injuries.
Transfer — shift responsibilty
- Get professional liability insurance to transfer your risk of unhappy clients and strategic mistakes onto your insurance.
- Get general liability coverage for your risk of accidents, like client injuries or rental damage.
- Get cyber liability insurance to shift payments for data theft onto your insurer.
Accept — plan for risks you can't reduce or transfer
- Claims from before you were insured. You can’t go back in time, but you can protect yourself from now on.
- Accept fewer risks with good planning and the right insurance.
Your Business, Backed by Insurance
Max didn’t start consulting to worry about lawsuits, accidents, or data leaks. But now that he understands what insurance for a consulting business covers, he can focus on helping clients and growing the right way.
Whether you work remotely, on-site, or both, business consultant insurance can protect you from the risks that come with giving great advice. Learn more about getting affordable, customized coverage from Insurance Canopy with our business consulting insurance guide.
Ready to back your advice with insurance?
FAQs About Consultant Insurance Coverage
What does business consultant insurance typically cover?
Business consultant insurance typically includes general and professional liability insurance. General liability covers the risk of bodily injuries (like slips and falls on your premises) and property damage. Professional liability protects your professional advice.
Some policies, like Insurance Canopy’s consultant insurance, may offer options to customize your policy for more risks. Common add-on coverages for consultants include:
What does consultant insurance not cover?
Every insurance policy has exclusions — and that’s good for you. Exclusions ensure your policy only charges to cover risks most consultants face, not special risks that probably don’t apply.
For example, business consultant insurance does not cover activities like childcare, medical and dental practices, legal practices, gun safety courses, animal care, and other high-risk services. See the full list of exclusions here.
How much does business consultant insurance cost?
You can get business consultant insurance from Insurance Canopy starting at $21/month. This policy bundles general liability and professional liability coverage into one policy, with the option to add on extra coverages like cyber liability, tools and equipment, and more.
