Insurance will be a large chunk of your operating budget, but is essential to your business. States differ in their requirements as to type and amount, so check with yours before acquiring a policy. Some states will also require that you be bonded. Shop around; companies that specialize in PI firms don't usually charge as much as those who don't. If you sell products, there will probably be a separate policy requirement with additional costs.

Types of Insurance

Liability insurance to include errors and omissions is required by most states that license investigators. Even when it is not required, errors and omissions insurance is the only real protection for a PI. This is because there are many areas where mistakes can be made in this business, as well as gray areas that have not yet been defined by case law. Electronic surveillance is one such area.

You may be following the current law for electronic surveillance in your state, yet if the client or target challenges this in court, you may find yourself on the wrong side of the judge's decision. Errors and omissions will cover this as long as you were acting under the law as you knew it to be. If information acquired concerning a target turns out to be wrong — a misprint, someone else's information or even missing information — you can be sued. With only liability insurance, you won't be fully covered. While these examples are unusual, they do happen, as do other mistakes that may be beyond your immediate control but can be held to your account.

A Hypothetical

Take this hypothetical example. You're filming a worker's compensation target living in a rural area. You pull a map of his property at the courthouse, set up your vehicle, and film on the public road down from his house. You aren't trespassing and you aren't violating surveillance laws, but the map is incorrect. You have no way of knowing it, but the road you are using is not public at all; it's the target's recently purchased private road. Oops! If this case never goes to court and no one challenges your mistake, then you're all right. If you are challenged, it can be expensive to prove that you were acting in good faith according to a faulty map. If it goes to court, you'll probably be exonerated — probably — but you can never know what a judge or jury will decide. Don't take the chance — protect yourself with errors and omissions insurance. Besides, even if you are exonerated, the cost of paying an attorney through the process of trial dates, postponements, and more trial dates can be enough to bankrupt a small business, no matter the outcome.

Large firms keep attorneys on retainer, but small firms must bear hourly costs. Most investigators spend an entire career without being sued, but in this litigious society, it only makes sense to guard against the possibility. Besides, clients are more comfortable with firms that are fully insured, realizing that it prevents them from becoming embroiled in a lawsuit against you.

The Bottom Line

If you are in business for yourself, don't neglect insurance on vehicles, equipment, and business premises. Large investigative firms provide employee insurance as well. You won't be able to offer this until you build up regular clients and a stable monthly income, but you can compensate your contract investigators with a few extra dollars per hour. Keep competent investigators by treating them well. Don't try to build your business at their expense.