What insurance does my IT software company need?

We have over 15 years of experience working with small IT consulting businesses.  Why is that important? Because this experience has given us the time to learn how the IT industry works. When you bid for a contract to work for a vendor they will hand you a sample contract that has all the requirements.  Let’s focus on the insurance requirements all consulting contracts have.

The most important insurance to look at is workers compensation.  If you have employees it is required by law to maintain workers compensation.  If you do not have employees it may still be required for LLC’s and Corporation.  Each state has its own laws and regulations.  Go online to each states department of insurance and check out what the laws are for your state or ask you local insurance agent.  Some states are considered monopolistic; these states have legislation that requires workers compensation coverage be provided exclusively by that states’ designated Workers Compensation Program.  There is no open market to buy insurance.  For more information about monopolistic states call 732-832-7997.

General liability is liability insurance that covers an office where customers come in an out, they potentially can slip, trip or fall and injure themselves.  General liability can protect you from this risk providing medical payments and litigation fees from lawsuits.  It can also protect your office furniture, equipment and machinery from covered perils such as fire and theft.

Why you need it? This is a great product to protect your business and office but you need this insurance to meet contract requirements.  Your work contract will require it.  You can get liability only or liability and property coverage for your computers office furniture if you work out of an office.

A coverage part of general liability it is almost always required.  Automobile liability can be confusing; you may say to yourself I don’t have any business autos why do I need auto liability.  This coverage is for an auto you may use for your job.  For example you rent a car while traveling for business.  If there is an incident, property can be damaged and people can be injured.  If you have Hired and Non-owned Auto liability you are covered from suit for this type of occurrence.  It does not fix the car this is liability coverage only.

Why you need it? Hired and Non-owned Auto Liability is a requirement on your contract.  Your client also wants you to have this coverage so if an incident happens it would be your insurance responsible and not their insurance.

Like an umbrella covers your form rain, Excess liability or Umbrella liability adds a level of protection to your general liability policy and workers compensation policy.  When you meet your insurance policy limits, an umbrella policy provides extra or excess coverage.  Say you general liability policy limit is $1M per occurrence, a lawsuit is made and a judgment of $1,500,000 is awarded.    This is $500,000 over your limit. At this point you umbrella coverage is activated to pay out the remaining judgment.  If you don’t have umbrella coverage the $500,000 can be your responsibility.

Why you need it? Umbrella liability (excess liability) is a coverage requirement on your vendor’s contract.  Your client required this to make sure your policy limits can handle any incident that may happen.  With your company meeting the required limits of insurance you are able to perform your work confidently and securely.

Professional liability insurance protects you against loss from a claim of alleged negligent acts or “errors and omissions” in the performance of your professional services. Your coverage will cover you for; Legal defense costs required to prove your case, all employees including W-2 employees and 1099 subcontractors, optional coverage for allegations of copyright infringement and intellectual property infringement, personal Injury against claims of libel, slander and invasion of privacy.

Why you need it? Professional Liability or Errors and Omissions insurance is another insurance policy requested by your client or vendor.  This insurance would be used if your consulting or programming services leads your client to a financial loss.  This insurance actually insures the work you do in case of an error or omission.

Third Party Fidelity Crime Bond is generally divided into two types, Fidelity Bonds and Surety Bonds. Fidelity surety bonds are different from insurance in that they always have three parties central to the contract; Principal – the entity or person that might cause the loss, Obligee – the entity that collects under the bond, should the principal cause a loss, Surety – the entity that pays the loss, such as an insurance company. Fidelity Bonds are technically a form of Surety Bonds, but are usually considered a distinct product in common usage.

Why you need it? This is another contract insurance requirement. Crime Bonds are issued as a guarantee against loss due to employee dishonesty. As such, they are an important part of a company’s insurance program, because they cover areas not covered in the companies Liability and Property coverage.

Dan Levenson

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