Check if you owe any quarterly tax to the IRS. Deadline Jun 17

Turn your expenses into deductions
Avatar Image
Protecting Your Business With Liability Insurance For 1099 Employees

When working as a self-employed professional, freelancer or independent contractor you have to create your own space in the market for your business. This might seem like the most difficult part of being self-employed, but the legal side of self-employment can also pose a lot of trouble. 1099 employees can face some legal issues relating to their business. We’ll help prepare you in every possible way by guiding you with business liability insurance and how to use it in different scenarios.

What’s a 1099 employee?

1099 employee is a term generally used to refer to self-employed individuals, freelancers and independent contractors. The term originates from Form 1099, which is an information sharing form sent to the IRS by a company that pays a self-employed, freelancer or independent contractor for their services. For this reason, these professionals are sometimes referred to as 1099 employees.

What insurance should a 1099 employee have?

Since the IRS recognizes 1099 employees as sole proprietors, they have to take care of any legal issues arising from the operation of the business. When your business engages with different people, legal cases may arise for a variety of reasons or from the risks involved in operating a business.

Let’s look at some examples that might result in someone taking legal action against you or your business. Say you are a delivery driver, for example, and your vehicle hit someone. Or you didn’t deliver a priority item on time and the customer is upset. Let’s say you drive a refrigerated ice cream delivery truck and the ice cream melts along the way resulting in the store owner losing his purchased product. In each of these cases, the other party can sue you. Having business liability insurance can save you a lot of hassle since it covers your business against any legal damage.

Why do I need business liability insurance?

Consider the following factors that make it necessary to get business liability insurance:

  1. The company that hired you as a 1099 employee will only sign a contract with you if you have general liability insurance. You might be a driver for this company or a construction contractor.
  2. You want peace of mind and safeguard your business when working and engaging with other businesses or individuals via your company.
  3. You will have protection against claims from third party clients when they are not satisfied with your product or service.
  4. The insurance provides protection against a breach of contract or issues arising from professional negligence.
  5. Failure to deliver on business commitments on time.

Which liability insurance should I choose?

There are two main types of liability insurance. General liability insurance and professional liability insurance.

General liability: This type of insurance protects you when a client or third party accuses you of property damage, claim of libel and cases of reputational harm. A libel case means that you published something that harmed a third party, on the other hand, reputational harm is when your work/actions harm the reputation or brand value of a person or company. This type of liability insurance helps you cover legal costs.

Professional liability insurance: This insurance is much more suited to protect you against claims when you provide services for a fee. It’s also known as errors and omissions insurance and helps you cater to claims from not providing a service to the fullest or for bad performance.

Image entitled different types of business liability insurance names some essential types like business interruption insurance and commercial auto insurance

Which liability insurance to get as a 1099 employee?

It all depends on your industry and what kind of work you do. For example, if you have a vehicle and work as an independent contractor delivery driver, you should get commercial auto insurance. You can check delivery driver deductions on FlyFin.

Business interruption insurance is needed if you produce a product and worry that the operations and income will be impacted if production is suspended. This insurance will protect you against loss of income when interruptions do happen.

If your business handles the personal data of clients, it’s a good idea to get cyber liability insurance. This is best suited for public accountants or portfolio managers that deal with sensitive information.

Choosing liability insurance for 1099 employees

There are few things to keep in mind when choosing the best liability insurance for your freelance work. To select the best liability insurance you have to look at the nature of work you do, the risks involved in your line of work and the intended coverage.

In addition to the above, you also need to look at the income you make working as a 1099 employee and then weigh in the scope of coverage. You can then compare different business insurance providers like Thimble, USAA or State Farm.

Can I deduct business liability insurance?

Yes, the IRS allows 1099 employees, self-employed individuals and freelancers to claim business liability insurance as a tax deduction. The basic rule is that the insurance must be necessary and ordinary for your line of work. You can claim different types of business insurance like general liability insurance, professional liability insurance, cyber liability insurance and more.

How can I find all my 1099 tax deductions?

The best way to find your tax deductions is to use an A.I. tax deduction finder like FlyFin. This cutting-edge tax tool helps you find all your deductions in minutes, including your business liability insurance premium, securely from your bank statements. After the A.I. finds deductions, you can check it with an expert CPA for 100 percent accuracy. You’ll even have full audit insurance coverage. FlyFin helped save $3,700 on average for 1099 employees on their 2022 tax returns, making it the best choice for freelancers and self-employed individuals.

FlyFin CPA Team

FlyFin CPA Team

With a combined 150 years of experience, FlyFin's CPA tax team includes tax CPAs, IRS Enrolled Agents and other tax professionals, offering users the most comprehensive tax advice and preparation.

Was this tip useful?