Do You Need Insurance? You Bet Your Business!

How many times have you heard someone say after a crisis. “I’m just glad I had insurance”? Although insurance may seem a burdensome expense for a small-business owner or independent contractor, the risk of not being adequately insured is potential the loss of your business.

As an independent contractor, you are responsible for protecting yourself from liability. “No salon owner in her right mind would allow an independent contractor to operate without insurance,” says Carolyn Galbraith, an independent insurance broker in California who specializes in the salon industry. “If something happened and the client discovered her manicurist was uninsured, she would sue the salon owner instead.”

Business insurance is an absolute necessity for an independent contractor renting booth space from a salon owner/landlord. Types of insurance and how much coverage you need are the issues to be clarified.

The primary reason for having insurance is to protect your property and your income, but the IRS and your state government look at the fact that you carry your own policy as a measure of the working relationship between the salon owner (who is essentially the booth renter. Having your own separate insurance policy is one factor the IRS and state agencies use to determine if your are an independent contractor deserving the tax benefits that come with business ownership. Of course, insurance is not the only or deciding factor in determining your status, but it is an important one of many.

It is important to carry enough insurance to protect both your property and your income. The two primary types of insurance independent contractors must be covered by are general and professional liability. Other types of insurance, such as property and disability, are purchased at the discretion and need of the individual.

COVERING THE BASES

Professional liability insurance essentially covers you in the event of a claim for anything you, as the service provider, do to your client. For example, if a client sustains any injuries as a result of your negligence – e.g. improper use of products, mishandling of electric files – your professional liability insurance should cover the cost of legal representation and payment of any claim if ordered. It serves the same purpose as malpractice or errors and omissions (E & O) insurance serves in other professional occupation. “Nail technicians are in a profession where they work with chemicals and are touching other people,” says Marc Wittenberg of Marc Wittenberg and Associates in Dallas, Texas. “Many of them don’t understand the risk they’re taking.

In California, a professional liability policy with $1 million in coverage would cost about $315 a year for an independent contractor, says Galbraith. You will be required to carry the same size policy as the salon owner’s own general liability policy, and the salon will also require that you name her or her company as an “additional insured” on your policy. This is a protective measure in the event one of your clients files a lawsuit against both of you. Do not be alarmed by this request; it is just good business.

General liability insurance is coverage both the salon owner and independent contractor must have. As the name implies, general (or premises) liability insurance covers all the physical property, including common areas and nail technician stations. If a client trips and falls, is cut with broken glass, or experience any other mishaps not resulting from hands-on service, the client’s claim will be paid through a general liability policy.

Business owner, or property, insurance covers your own personal equipment in the event of burglary, fire, and other man-made or natural disaster specifically included in the policy. A salon owner’s policy covers items in your station that belong to her, but you are responsible for insuring your own products and equipment.

Disability insurance will provide you with income in the event you are unable to perform all or part of your professional duties. Employees are covered under worker’s compensation; as an independent business owner, you are not covered by worker’s compensation if you cannot work due to a work-related injury. You need to buy what is called disability insurance, which will give you a source of income if you are unable to perform your job. Most independent contractors don’t buy it, says Steve Lange of Bell-Anderson insurance in Bellevue, Wash., “not because they don’t need it but because of the cost or it may not be readily available in their area,” he says.

Disability benefits equal about 60% - 70% of your taxable incomes, and for nail technicians, the maximum duration of benefits is anywhere from 1-5 years. The number is based on an industry classification of low- to high-risk occupation. Nail technicians usually get an “A” rating, where “AAA” is lowest risk and “B” is high risk. Your premium will vary depending on how long you choose to wait before payments begin, whether it’s 14 fays, 30 days, 60 days, or 90 days. The best way to get a reasonable premium, says Wittenberg, is to choose the plan with the longest possible waiting period. “The odds of remaining disable after 89 days are much lower than after 13 days, so the carrier assumes less risk,” he explains.

All salon owner/landlords should require that the booth renter show proof of both professional and general liability coverage. Coverage of $100,000 to $500,000 is considered adequate for nail technicians, but the salon owner will often require you to be insured for an amount equal to her coverage.

CONSIDER YOUR OPTIONS

There are several ways you can meet your insurance obligation:

1. The salon owner/landlord can require you to furnish an individual insurance policy with a specified dollar amount. She may ask that she named as an additional insured.
2. All booth renters in the salon could elect to go together and get a group that meets the requirements in number 1 If this option is chosen, the salon owner will receive a certificate from the renters’ insurance company that specifies the people and services covered by that policy.
3. The owner could add the renters to her salon policy. In this situation, the renter and the services provided by the renter must be listed on the owner’s policy, and the renter must pay for her portion of the insurance coverage. This is very often the most cost effective route. A full package including general and professional liability, as well as property protection, might cost anywhere between $150 and $200 a year per technician. Be sure to keep a receipt for your payment to use as a tax write-off and also to continue to show the separation between booth renter and salon owner/landlord.

Check with your insurance agent if you choose the third option to ensure you are very clear about the pulses and misuses of this approach. There are brokers who specialize in insurance packages for people in the beauty and nail industry. Also, the Nails Industry Association (NIA) offers liability insurance packages to independent nail technicians starting at about $65 a year. The NIA also offers an “additional insured” clause at no additional charge.

Buying insurance is like ordering from an a la carte menu in a restaurant; the more you order, the more expensive the bill. Be thoughtful about your insurance choices. It is just as unwise to be over-insured as underinsured. And remember: It may hurt in the short run to pay for insurance out of your hard-earned money, but the long-term peace of mind is well worth the cost.