The coverage you need depends on your contract terms. Consider how you get to work, where you’ll be doing it, what kind of information and assets you’ll be working with, and who’ll be doing the work.
To prepare this guide, our editorial team reviewed Insurance Bureau of Canada’s business coverage guide, IBC’s home insurance buying guide, the CRA’s insurance expense guidance, and the CRA’s business-use-of-home rules.
What Are My Business Insurance Options as a Consultant in Canada?
No single type of insurance applies to all consultants. Professional liability, commercial general liability and cyber insurance are common places to start, but none is automatically required. Then add property, business income, auto, crime, employment, governance or media coverage only where the exposure exists.
The best way to determine which types of insurance are appropriate is to consider client contract requirements and what situation would cause the biggest loss.
| Coverage | Risk it is designed to address | Consultant trigger to check |
|---|---|---|
| Professional liability or E&O | Claims that defined professional services caused a client to experience financial loss. | A consultant offers advice, design, analysis, implementation or another professional service that the client relies on. |
| Commercial general liability | Third-party bodily injury or property damage and related defence, subject to the wording | Meet clients in person. Use a rented space for work. Visit other job sites. Perform activities that may potentially result in property damage. |
| Cyber and privacy | Cyber and privacy insurance provides coverage for initial costs associated with a covered cyber or privacy event for first-party response, as well as specified third-party claims stemming from a covered event. | Depending on what type of consulting you do, such as keeping data or credentials or managing IT or digital systems, consider the relevant coverage options. |
| Commercial property or equipment | Covered loss to business-owned computers, tools, stock, records and other scheduled property | Your work depends on equipment at home, in transit or at client sites. |
| Business income or extra expense | Income loss or added expense after the covered trigger described in the policy | A covered property or cyber event could stop billable work for a material period. |
Coverages for Specific Triggers
| Coverage | Risk it is designed to address | Consultant trigger to check |
|---|---|---|
| Commercial or non-owned auto | Commercial vehicle liability: triggered for vehicles operated by your business, or if your firm utilizes hired or non-owned vehicles. | Your business has a company vehicle, rents vehicles or asks employees to drive their own vehicles for work. |
| Crime or social engineering | Specified theft, fraud or deceptive-transfer losses | You or staff can release client money, change banking details or approve electronic transfers. |
| Directors and officers | Claims about covered management decisions by directors or officers | The corporation has outside directors, investors, formal governance duties or contractual D&O requirements. |
| Media or intellectual property liability | Specified claims that arise from content, advertising or intellectual-property allegations | You publish campaigns, software, designs or other client-facing content. |
Errors and omissions insurance doesn’t automatically respond to all situations where a client is unhappy, a deadline is missed, or there’s an allegation of a breach of contract. Whether it responds to a specific claim depends on what was alleged, the professional services provided, exclusions, reporting requirements, the coverage territory, deductibles, limits and more.
Read More: See How a Business Owner’s Policy Works
Compare Policy Wording, Not Only Coverage Names
| Policy field | Question to ask |
|---|---|
| Named insured | Is the corporation, trade name or person who performs the work included under the policy and in the correct capacity? |
| Professional services | Does the description match every paid service, including implementation and subcontracted work? |
| Claims trigger | Is the form a claims-made, a claims-made and reported, or occurrence-based form? What are the specific reporting requirements during the policy term? |
| Retroactive date and continuity | How far back can the underlying work occur, and what happens if coverage lapses or changes insurers? |
| Extended reporting period | How long after expiry are you allowed to report a claim? Does the policy only cover acts performed before expiry? What does it cost to report a claim? |
| Defence costs | Are legal expenses covered under your liability limit? Outside of your limit? With their own sublimit? |
| Territory and jurisdiction | Where can you provide services and where can you get sued? What about limitations or exclusions with regard to your US clients or legal action in US courts? |
| Exclusions and sublimits | How are breach of contract, guarantees, intellectual property, cyber events, social engineering and regulatory amounts treated? |
Read More: Learn How Certificates of Insurance Work
Match the Package to the Consulting Work
- Technology consultant: Check your tech E&O and cyber policies to see how they relate to each other regarding data privacy violations and security breaches, breach response costs, client-system failure, third-party access and so on.
- Management consultant: Ensure that the policies reflect the type of consulting you’re offering – strategic, analytical, implementation, etc. Check your E&O policy for contractual liability, performance-based terms and third-party resources.
- HR consultant: Ensure that you have the right liability, privacy and employment-practices policies for your own employees. Depending on the nature of the decisions made at the client’s organization, client employment decisions may be treated differently.
- Marketing or design consultant: Review your E&O coverage for copyright, trademark, media, advertising and cyber coverage. Don’t assume these items are included.
- Engineering, health, legal or financial consultant: You may face professional licensing rules. Check with your governing body for specific insurance needs.
Sole Proprietor vs. Incorporated: Does Your Insurance Strategy Need to Change?
When a consultant incorporates, the consultant’s business becomes a separate entity. Unlike a sole proprietorship, where the sole proprietor and his/her business are the same, an incorporated business is a different “person” from its owner.
Incorporating does not mean that D&O insurance is necessarily relevant, however. It also doesn’t insulate you from personal liability for your own acts, such as negligence, certain statutory liabilities, and any personal guarantees you’ve given.
A one-person corporation may find that the more relevant policies are Errors & Omissions, cyber, property, auto, etc. D&O may be relevant if the consultant has investors, a board, employees, financing arrangements or contractual requirements that heighten directors and officers exposure.
The policy should name the legal entity and the people or roles that need insured status.
Working From Home Changes Both Policies
Operating a business from your home can affect coverage under your home insurance policy and may also affect coverage under commercial insurance.
Confirm with your home insurer whether business-related coverage is allowed and what restrictions may apply. For example, some policies may offer a small limit of coverage for business tools and instruments, but off-premises equipment or business liability may need separate coverage. The terms of the policy, including any endorsements, will affect coverage. So, it’s inaccurate to say that all business-related losses are excluded.
Declare the nature of your business, including:
- whether you have employees or customers at home;
- whether you keep hazardous substances;
- whether you keep an inventory;
- whether you have a sign on your premises;
- whether you have machinery that may affect how your home is used;
- whether business property is covered at home, in a vehicle, while travelling and at a client site.
Approval by an insurance company to operate a business from your home doesn’t necessarily mean it’s OK. Confirm that you’re allowed to operate a home-based business under your mortgage, lease, condominium declaration or applicable bylaws.
Read More: Read the Home-Based Business Insurance Guide
Is Consultant Insurance Tax Deductible?
Insurance premiums may be deductible if they’re a reasonable expense incurred to generate business income.
For a sole proprietor, CRA specifies that premiums on commercial insurance for business assets such as your business’s building, equipment or machinery go on line 8690. However, if your consultant income tax return includes vehicle expenses, insurance is part of that. Insurance can also be a component of business-use-of-home expenses, meaning the business-use component of your house’s premiums, keeping in mind CRA requirements to deduct these expenses and that you can’t use them to create or increase a net business loss.
Determine the percentage of space used for the workspace, such as a portion of the total floor area, and adjust this percentage if the space is used only at certain times. Business-use-of-home expenses cannot create or increase a business loss, though an unused amount may carry forward while the conditions continue.
Keep your insurance policy, the insurance premium’s invoice, proof of payment, and calculations used to determine deductible amounts. Check with your accountant to determine where to report other business-related premiums, such as cyber, professional liability and package policies.
Common Mistakes to Avoid When Choosing Consultant Insurance
- Failing to have sufficient limits. Legal costs may reduce the amount available for a claim, so ask whether defence costs are inside or outside the limit. Also, make sure you meet any client-specified insurance requirements.
- Incorrectly describing the nature of your business. Make sure to include implementation work, use of subcontractors, etc.
- Using your personal car or homeowners’ insurance for business-related use without notifying the insurer.
- Not reading the small print. Check for exclusions and limitations. For example, a cyber insurance rider may not cover losses from social engineering or system interruption. Make sure you have adequate first- and third-party cover.