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I have been working in a company for a month. They buy my service instead of hiring me, so they ask me to set up my company. I do some drawing and design work for them. I want to know what kind of liability insurance should I buy and how much would it cost?

I'm located in California.

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How about telling us where you are? At least so that we'd know what currency they use over there, let alone actual prices... – littleadv Sep 1 '12 at 5:55
@littleadv I live in US. – Marco Sep 1 '12 at 12:11
By the way, I plan to create a Sole Proprietorship company NOT LLC – Marco Sep 1 '12 at 12:31

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Marco, It also depends what state you are in. Many states crack down now on companies that 1099 software developers if the core business of the company is software. I would not want to deal with that mess, especially when DOL starts questioning you, because they want back-taxes from your "employer".

That said, highly recommend LLCing. Insurance companies seem to like that better, at least from my experience.

What insurance policies you will need? Well... if they are contracting your company, they probably will ask for proof of workers comp, general liability insurance, and some will even ask for errors and omissions. So get your rates way up, because you will need to make your money back on those expenses.

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I live in CA and mainly doing some computer aided drawing for engineering diagrams. I also provide some suggestions on their engineering problem. They did not ask anything about proof of workers comp and general liability insurance, but I want to protect myself. – Marco Sep 1 '12 at 19:31
@Marco then "General Liability" is what you're looking for. I think there's a special policy for engineers as well, depending on insurance company. – littleadv Sep 2 '12 at 19:33
Marco, so what do you want to protect yourself from? Re. workers comp, must be poorly run shop you are contracting with. Most places (mine including) won't work with 1099ers without coverage. But again, I am not an insurance broker, you should contact a local one and discuss your needs. – Apollo Sinkevicius Sep 2 '12 at 23:02

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