Risks for Life Coaches (5 Steps to Set Up or Protect Your Practice)

Jenna was a life coach long before she knew the job had a name. She’s more used to her unofficial titles:

“The advice friend.”

“We need a team leader.”

“This is Jenna, the one I was telling you about. She’s been through this, too.” 

People looking for advice and motivation just seem to find her, so it might be nice to talk to them in an actual office (and not in dentist waiting rooms and grocery aisles, for a change.) But Jenna’s never run a business, much less a life coach practice. 

Knowing the risks and planning will get you far, whether you’re starting a practice like Jenna or trying to grow your coaching business. Let’s walk through the process with her and hit some coaching risk management tips.

Tackling Coaching Certification: What Are the Risks?

Jenna doesn’t have any life coach certifications or training, so she researches whether she needs a license to practice. Life coaching is unregulated in all 50 states, so she’s tempted to skip the money, time, and effort of taking certification classes.

But Jenna wants to be sure to give advice that helps and never hurts her clients. Running into recent high-profile life coach lawsuits and rumblings of state regulation online cements her choice to get certified.

Professional Risks for Coaches

Just because you can work as a life coach without certification doesn’t mean you should. Professional errors and crossing the line into therapy are two big legal liabilities for life coaches that getting certified can reduce. Most certifications include coursework on addressing common problems and drawing healthy professional boundaries between therapy and coaching.

It Pays To Be Prepared

A client sues a life coach for giving poor advice. 

Estimated claim cost: $100,254*

A life coach is sued for misrepresenting themselves as a physician when they “diagnose” a client with bipolar disorder. 

Estimated claim cost: $175,000*

Life coach’s advice about getting a promotion leads to a client losing their job. 

Estimated claim cost: $35,000

*Claim amounts in this article are estimated based on Insurance Canopy's internal knowledge and research and AI estimates. All insurance policies have conditions, limitations, and exclusions. Please read your policy for exact verbiage.

Avoiding Your Professional Risks

• Clearly describe your services in promotional materials so everyone is on the same page about what you offer. Life coaching and mental health can create tricky legal situations, so be clear about what your coaching is and is not.

• Set up referral relationships with local therapists or counselors. Chances are good that you will each get some business better suited to the other’s practice.

• Stay sharp with continuing education. Certifications require you to stay up-to-date with the latest techniques and motivate you to invest in yourself with professional development courses.

• Get professional liability insurance. Certification courses help you steer away from situations that could end in a malpractice lawsuit. If you do make a mistake or are accused of making one, professional liability insurance for coaches is designed to keep your business from taking the financial hit. More on picking the right insurance in a bit!

Creating a Business Plan: What Are the Risks?

Just the words “business plan” make Jenna twitchy. But she knows figuring it out as she goes along isn’t an option — she would never advise a client to wing it with a decision like this.

Jenna finds a life coach business plan template to help her separate the job of planning into bite-size steps. Once she’s finished, she knows who she wants to coach, how she’s going to reach them, and how much money it will take to get started.

Business Planning Risks for Coaches

Many life coach businesses fail in choosing a life coaching niche, or specialty. Maybe they try to appeal to everyone (and end up appealing to no one), or they’ve chosen a niche with too much competition or too little demand in their area. Underestimating resources is another risk at the planning stage, so careful forecasting and budgeting are key.

It Pays To Be Prepared

Life coaching is the second-fastest-growing industry in the U.S. with a 4.8% growth rate and 23,201 registered life coaching businesses in 2023.

Roughly 20% of small businesses don’t make it past their first year.

What that means: Assuming steady growth, roughly 223 of the 1114 new life coach businesses in 2024 failed. That’s a rough statistic, but it doesn’t have to be you!

Avoiding Your Business Planning Risks

• Tailor your business to a specific audience (like retirees) or a need (like career planning) that lines up with your strengths, education, or life experience.

• Do thorough market research to learn about your clients. What hours do they keep, what classes might they want, and what concerns do they have about life coaching?

• Research local demand and competition to find other coaches in the area, whether their niche overlaps yours, and whether there’s enough demand for your business.

• Know your startup costs. How much will it take to get your business off the ground? Think about business license fees, deposits for rental property, office furniture and supplies, and marketing costs to get your name out.

• Plan for your overhead costs, or the daily expense of running your practice. Factor in things like rent, utility bills, advertising expenses, software costs, and taxes.

Registering and Insuring Your Business: What Are the Risks?

It’s time for Jenna to tackle the paperwork. Good thing she’s the most organized person she knows. First up, registering with the government. This makes sure her business gets taxed correctly and keeps things above board.

Next, business insurance. Research tells her that life coaches need two major types of insurance:

• General liability insurance, which covers physical injuries or property damage to others because of her business (think slips and falls).

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• Professional liability (errors & omissions) insurance, which covers her advice if someone isn’t happy with their results or claims her advice hurt them.

She decides to go with a general and professional liability policy made just for life coaches rather than a more generalized business owners policy, or BOP. The more specific policy fits her practice’s risks without a bunch of extras she doesn’t need that drive up her price.

Business Paperwork Risks for Coaches

Failing to set up your business correctly can mean dealing with tax audits later. Between settlements, representation costs, and court fees, facing a lawsuit without insurance can also drain small businesses’ resources. On the other hand, not doing your insurance research could mean overpaying or choosing the wrong policy and not being fully covered.

It Pays To Be Prepared

A life coach accidentally discloses private client information during a public workshop. 

Estimated claim cost: $51,734 

(This claim could be covered with professional liability insurance.)

A client trips over a cable at a group coaching session and injures themselves. 

Estimated claim cost: $74,950 

(This claim could be covered with general liability insurance.)

Avoiding Your Business Paperwork Risks

• Register your small business as an LLC, sole proprietorship, partnership, or corporation. The tax and legal implications for different business structures for life coaches vary, so make sure to read up.

• Get life coach insurance. Insurance is designed to pay the costs if you’re found responsible for someone’s injuries, emotional distress, or property damage. Think of it like a safety net for your business — it absorbs some (or all) of the financial strain, so your business can bounce back after an expensive claim or lawsuit.

• Look for a policy made for life coaches to get the right amount and type of protection. $1 million of general and professional liability insurance per occurrence and $2 million of coverage aggregate (total for the year) is the sweet spot for most coaches. (Insurance Canopy did the homework of comparing coaching insurance costs and coverages for you if you want a head start.)

Setting Up Your Office, Pricing, & Programs: What Are the Risks?

Jenna decides to rent rather than buy office space to keep her costs down. On day two in the new building, she sends a nail straight through a pipe in the wall while hanging a white board. She files a general liability insurance claim for the repair costs and gets back on schedule for her grand opening.

Business Setup Risks for Coaches

Property damage in a brick-and-mortar office is especially likely during move-in (when it’s easy to break or knock things over during setup), but it can happen at any time. If you do home visits, consider the possibility of damage to clients’ property too when considering insurance.

Missteps in pricing or service creation can also set you up for trouble during this stage if your pricing or programs don’t align with your customers’ budgets or needs.

It Pays To Be Prepared

A coach accidentally backs into and damages a client’s expensive artwork during a home coaching session. 

Estimated claim cost: $33,584

A coach accidentally leaves a candle burning in their rented office overnight, starting a fire.

Estimated claim cost: $15,000

Avoiding Your Business Setup Risks

• Make sure your insurance includes general liability protection. Professional liability insurance is vital to cover your advice, but don’t forget general liability insurance if you rent an office or visit clients’ homes. Landlords frequently require business insurance with general liability to rent a commercial space because they know what can happen.

• Research competitor coaches’ rates and programs to avoid undercharging or overcharging. It can also reveal gaps in others’ services that you could fill. What would make clients’ lives better that isn’t available in your area? Be the coach who gets them.

• Consider coaching business software like CoachVantage to streamline services and scheduling. Organizing your programs and calendar with business software saves admin time and makes your programs more accessible to the people you want to reach.

Creating Your Online Presence & Marketing: What Are the Risks?

Jenna has been asking friends and family to spread the news about her coaching practice, but she needs better visibility online. She sets up branded social media accounts and a professional site with inspiration from a few well-designed coaching websites.

In month seven of her coaching business, she clicks a ransomware link that holds her client data hostage until she pays up. A “potential client” she talked to on Instagram was actually gathering info to create a convincing scam.

Online & Marketing Risks for Coaches

Along with the potential for lawsuits around data breaches and cybercrime, having an online presence means you need to be more aware of issues like copyright infringement, violation of privacy, and defamation on your social media channels, website, and advertising. There’s also the chance that your online marketing strategy doesn’t connect with your audience.

It Pays To Be Prepared

A coach uses a photo they found online without permission in their social media ad and is sued for copyright infringement.

Estimated claim cost: up to $350,000

A cybercriminal hacks a coach’s online client records and steals credit card info. 

Estimated claim cost: $200,000

Avoiding Your Online & Marketing Risks

• Get cyber liability insurance to cover the cost of data breach lawsuits if a business account gets hacked. Check whether your coaching business insurance also offers cyber liability as an add-on — bundling coverages in the same policy is often less expensive than working with multiple companies.

• Follow best practices for cybersecurity. Sending online payments through secure payment portals, using caution when opening emails and communicating online, and keeping your security software updated are all vital to protecting your data.

• Choose life coach insurance that includes personal and advertising injury coverage. Some general liability policies cover advertising mistakes like copyright infringement and other common lawsuits around online marketing. Hopefully you never need it, but it’s good to know you’re protected in case of mistakes.

• Only post images and other creative assets that you created or paid to use. That includes getting permission from clients to use their photos or stories in your marketing materials or social feeds.

• Use customer niche research to inform your coaching marketing strategy. To avoid wasting money on ads that won’t connect, research where your audience spends time online and concentrate your ads where they’re likely to visit. For the ads themselves, put solving their problems front and center.

Next-Level Coaching: Transform Challenges Into Opportunities

Jenna’s first year as a life coach had its ups and downs, but her careful planning paid off. On her agenda for year two — networking with other coaches at industry events and launching her online coaching program. What’s next for Jenna? The sky’s the limit.

Jenna’s journey can be yours. Building a vibrant, thriving practice starts with insuring your coaching for peace of mind. Visit Insurance Canopy to learn more about getting comprehensive, affordable Life Coach Insurance customized just for coaches’ needs.