Self-employment questions


Thread Starter

Bill Sturm

I am sure that some of you out there are self-employed. If so, what type of business insurances are necessary for a self-employed
controls engineer?

Basic liability seems likely. Errors and omissions? Should I be incorporated? Is workmans compensation necessary if I have no
employees? I understand these may vary from state to state, I am in Michigan.

I am just starting out and I need to learn these things, and not just from an insurance salesman. Please respond by the a-list or direct email if you prefer.


Bill Sturm
Livonia, MI
[email protected]

Bob Peterson

I doubt you can even get professional liablity insurance that you can afford. the major thing about professional liability coverage is not the claims, but the legal defense costs. thats what you are really insuring yourself against.

You probably are not eligible for workman's comp, and if you are your only employee its an unnecessary expense. get a decent health insurance plan, short term, and long term disability. these three plans will cover most all
of what worker's comp would. be aware that as a self employed person, your cost for such insurance will not be cheap.

there are some cooperatives that can help with these costs though. you can also arrange through a flexible benefits company to make your health
insurnace premiums pretax, which could amount to a tax savings of several thousand dollars per year.

you might also talk with some temp services. a guy I once worked with, was officially an employee of a temp service. his professional liability, health benefits, and other insurance coverages was taken care of through the temp
service, although he had to pay the premiums (except the professional liability coverage). he told me it cost him about $15/hour for this, but
they also took care of billing, and making sure he got paid every week.

Bob Peterson
CM#1412 ANA#R-182415
I think basic information such as this should be posted via this list and not via private email as I imagine many list members have the potential for self-employment on a full or part-time basis
and it is important information.

(I'm interested, anyhow :^)
bob peterson gave you some good advise.
having a "c corp." for tax purposes is a good idea. the disadvantage is having to do corp. taxes and personal taxes. the advantage is all the pre-tax benefits and writing off


You will probably want 1M minimum liability and some of your customers may ask that you are covered for 2M. The same policy will likely cover

Ask a CPA about incorporating. Mine said not to bother until I was large enough to have employees. The advantage.... protection from law suits.... Disadvantages are many for a one man are taxed at two levels, your accounting methods become very complex, and in this day and age of the law suit you may not be exempt from a law suit if you are the business owner anyway.

I had one company request that I have comp, but I got around it by filing a statement that I would not hold them liable for any injury I sustained while in their plant that was a result of my actions doing the work I was contracted to do for them.

Talk to a lawyer and a CPA about these issues in your state. I am in Indiana. A wise man seeks the council of many.

Sid Roberts
Roberts Electric Services

[email protected]
You certainly want general liability. All of my clients (most are petrochemical plants) require you provide a certificate of insurance. They get to pick the limits. In Texas they're now asking for $2 Million USD on general liability. Sometimes
they require commercial auto and workers comp.

By the way, in Texas workers comp is not required by state law, but since all the plants require it everyone one I know does have the coverage.

Check with your [prospective] clients and see what they require -- at a minimum you will want to meet their requirements <smile>.

E&O insurance can be very expensive and hard to get. I don't know of many computer consultants (members of the ICCA that carry it. If you find it is required ... good luck!

I was self-employed in CA for 18 years and can tell you what insurance was like then. It probably has not changed much. Basically, as much E & O and General Liability as affordable is good to have. Often, a minimum of $1M is required by many clients (at least Municipal)to do business with them. Workman's comp is only needed for any employees you might have. Oh yes, often clients will require higher than normal vehicle insurance (again the 1M figure is common).

Unfortunately, the cost picture is pretty depressing for E & O and GL. It seems the litigation happy days we are now in have scared the insurance firms. In 1996, E & O ccost me ~10K for 250K with 20K deductible and a clean, no claims ever filed, record. And, it was hard to even get a quote. GL was more reasonable (~$1500), but required I have E&O.

To make things worse, insurers often put so many riders in the policies that it seems you may not (technically at least) be covered for the most likely problems; software for instance i.e. no protection for a bug in a PLC application.

Also, E&O only covers claims made while your policy is in force as well as only for problems that occured while you were insured. In other words, you need to keep up your insurance after you stop doing work to be protected for earlier work done while you were insured. Even this "tail off" insurance is not inexpensive. After I became an employee in 1997, I paid about 6K to cover work done in 1996.

What I did was to start requiring clients that wanted the insurance to pay for it as a reimbursible expense. Luckily for me, my client relationships were such that it was doable. It might be much tougher for someone starting
out. The whole situation seems like a waste of money and effort. Maybe some insurance firm will look at real costs/risk (for us at least) and offer some reasonable pricing again some day.
The first person to talk to with regard to this is an attorney. Get an
accountant lined up also.

Errors & Omissions: I have gotten varied answers as to the importance. It
is expensive. You really have to look at your risk in the type of projects
you do. The importance may be different if you are a PE.

Don't forget to insure the contents of your auto & rental space- should that
expensive control be damaged or stolen while in your possession. I have a
rider on a policy for this purpose.

Incorporating will provide a level of protection against your personal
assets. Talk to an attorney.

Workman's Compensation: Some customers will insist you have workman's comp
before you work in their plant. It really provides protection for them,
should you be injured at their facility. I believe, that if you are a
corporation you could file for workmans compensation if injured. But a
business owner (non-corporation) cannot file. Check this with an attorney.

David Kane - Kane Engineering Group Inc.
[email protected]

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I have incorporated my consulting office (a one-man operation which by now has lasted for some 27 years) and have taken out a P.E. registration, but
other than that, I have no special insurance.

When providing construction or start-up supervision of longer duration, I hire people for that and insure them. Other than that (it seems to me that) the key is to make sure that your design is based on past successes, sound logic and after all that it is triple checked.

No insurance can save anybody if the work is sloppy, and you should have no problems if you do a good job.

Lots of luck, Bela Liptak

PS: I keep tabs on people with specialized experience, let me know if you are one of them.

Anthony Kerstens

For those in Canada, note the Ontario Engineers Act requires a Certificate of Authorisation, and insurance. If you do not have insurance, you are required to inform your client.

Refer to for more detailed information.

Anthony Kerstens P.Eng.

Darren Tichbourne

The Canadian insurance scene sounds very similiar to the US one. Insurance men are some of the most 'conservative' people you will find on this planet. The norm used to be $1M CGL (commercial general liability), it now seems to be $2M.

It's all about the kind of work you get into, and what is involved. Also, if a sole-proprietor.... is the person a Professional engineer, phd, technician, technologist etc etc etc.

Its hard starting out, I know from experience. In my own case it took 5 insurance companies and 14 months to get coverage. So be calm & patient <grin>. I found insurance people didnt understand
(our) technical wording and flavour of speech we tend to use being around machines so much. So perhaps 'de-tuning' the vocabulary or grouping of words might help some of the non-technical people
that you talk to.

lots of luck,


Darren Tichbourne
President, System Integrator, CET
CompuSys Solutions
Email : [email protected]

I worked as self employed for years (Canada).
I supplemented for some complementary medicare not covered by the national hospitalisation
(insurance via Great West), for myself and family.
For some client, working in field, I was requested a general liability of five millions (like other contractors: single man or several). Some client, in the office requested nothing,i.e: no "damage to property coverage".
That's not all.
Instead of self employing myself as "Incorporated" , I was simply "Registered". So, all my work had to be signed up by the clients.
Thus relieving me from professionnal liability.
Smart indeed. Well, my professionnal affiliation had only expensive liability plants to offer.
This in turn would have significantly increased the hourly rate and changed nothing to the client from the design point of view.
Two ways happiness.