The Importance of Insurance
Insurance coverage plays a critical role in protecting your team and your business, whether you work with W-2 employees, independent contractors, freelancers, vendors, or a mix.
This guide breaks down the most common types of insurance related to workforce management, what they typically cover, and why insurance is essential for your operations.
Important disclaimer: This page is for general informational purposes only and does not constitute legal or insurance advice. Policy coverage and legal requirements may vary based on jurisdiction and specific circumstances. Consult a qualified insurance advisor or legal counsel for guidance tailored to your specific situation.
Worker’s Compensation Insurance
Who needs it: Businesses that employ W-2 employees.
What workers’ compensation insurance covers:
Medical expenses and treatment for work-related injuries or illnesses
Temporary and permanent disability benefits
Lost wages
Return-to-work support
Death benefits for families
Why it matters: Workers' compensation coverage is typically required by law for W-2 employees. It protects both the worker and the employer from the financial consequences of work-related injuries and illnesses. The required minimum limits for worker’s compensation policies vary by state. For example, in California, businesses must carry a workers’ compensation policy with a minimum limit of $1M of coverage.
Independent contractors are generally NOT covered under a business’s workers’ compensation policy, and may be required to carry their own insurance.
Employment Practices Liability Insurance (EPLI)
Who needs it: Businesses that employ W-2 employees.
What EPLI covers:
EPLI protects your business if an employee sues over their treatment at work. EPLI typically covers legal costs, settlements, and damages related to employment-related issues, such as discrimination, harassment, retaliation, wrongful termination, and breach of contract.
Why it matters: Even with strong internal policies, employment-related claims can arise. EPLI helps businesses by providing financial support to pay legal expenses and potential damages from judgments.
General Liability and Auto Liability Insurance
Who needs it: Any business that interacts with people, property, or places should obtain general liability insurance. Companies that own or lease vehicles for work, hire or subcontract drivers, deliver equipment, or travel to multiple job sites should consider auto liability insurance.
What general liability insurance covers:
Bodily injury - Example: a non-employee trips and gets hurt at your business location.
Personal Injury - Example: Libel, slander, advertising mistakes.
Property Damage - Example: You accidentally damage your client’s laptop.
What auto liability insurance covers:
Injuries or damage caused to others in a work-related auto accident
Legal defense and settlements
In some policies, damage to the vehicle itself
Hired and Non-Owned Auto (HNOA) are elective coverages. Non-Owned Auto insures an employee's vehicle when used in the course of working, while Hired Auto covers rental vehicles.
NOTE: Auto liability insurance will be either a Commercial Auto policy that covers company-owned vehicles, or a personal auto policy.
Why it matters: These policies mitigate financial liability for incidents that occur during day-to-day business operations—whether on location, on the road, or at a client site.
Insurance for Independent Contractors (1099 Workers) and Vendors
Who needs it: Independent contractors/freelancers/vendors must carry their own insurance.
What businesses should look for:
General liability insurance
Auto liability insurance if a vehicle is used in the course of performing services.
Workers' compensation insurance
Industry-specific policies relevant to the contractor’s work (e.g., stunt work, driving, rigging, etc.)
Proof of insurance should documented on a Certificate of Insurance (COI), with policy dates that cover the independent contractor's engagement with your business.
Why it matters: Many teams overlook the liability of working with improperly insured independent contractors. Independent contractors are not automatically covered under a business’s insurance policies. In most cases, businesses cannot extend their workers’ compensation coverage to independent contractors without risking misclassification. Businesses must verify that all independent contractors carry their own appropriate insurance coverage.
Best Practices for Businesses
Understand what your insurance policies do (and don’t) cover:
Read the full policy, including all exclusions and endorsements.
Ask your broker or insurance provider to clarify anything that is unclear to you.
Make sure the policy reflects your actual business operations, risks, and needs.
Review your coverage regularly, especially if your business grows or changes.
Review your vendor and employee classifications regularly so you can ensure that your whole team has the appropriate coverage.
When working with independent contractors/freelancers/vendors, you should also:
Confirm they have appropriate insurance coverage before work begins.
Request copies of the appropriate Certificates of Insurance (COIs) and keep them on file. When requesting COIs, you can require the contractor or vendor to name you as a certificate holder on their policy. This allows you to be notified of any changes to the contractor’s policy, ensuring that their coverage remains active for the duration of their engagement.