The are a couple of ways to recruit students. The first is to put your business card at every airport in the area. There are usually a couple places at every airport, terminal, restaurant, FBO, where you can place your cards. Also, you can put up flyers at the the local colleges, the best kind I've seen is the full page ads with tear off numbers. Lastly, if you have a big expensive school in your area like FlightSaftey, you might try putting flyers on the cars parked there. I've had a few flyers on my car recently from freelancers.
Another part of recruiting is to be at all the aviation related events in your area. Try to meet as many people as possible and give out your cards. Wings meetings are great, since many of the people there will be doing some dual soon. Other things you might want to look into are Angel Flight and your local EAA chapter. Also, if your university has some type of flying club I'd get into that.
The most important recruiting tip is to always give the very best service you can. Most people that succeed at freelancing get many new customers by word of mouth. Always act professional, and always give your current students some cards and let them know your always on the look out for new students. If they think your a great instructor your current students will gladly recommend you to their friends.
There are two types of insurance you'll need, airframe and liability. Airframe insurance will come with the aircraft your flying. If if's the FBO's airplane, they should be providing the insurance on it. However, some policies allow the FBO's insurance compnay to pay the FBO for the damage, then come after you for the money. Make sure your considered “named” on the policy. If your flying a customer's aircraft make sure that CFIs are considered “named” on the policy, or have the owner call the insurance company and get your named on the policy. Even though the owner will be protected if the airplane is wrecked, you want to make sure the insurance company doesn't come after you later. Liability insurance is something that I would buy from AOPA or NAFI. Aircraft insurance policies have liability, however, you'll also want to have some generally liability insurance. For example, six months after one of your students had a private checkride they crash and sue you. You'll need some general liability coverage, the aircraft's coverage won't help you. The whole insurance thing is pretty complicated, I suggest reading all the insurance articles on avweb.com, especially this one.
http://www.avweb.com/articles/lendplane/
In any case, good luck. Freelancing instructing is difficult, and it will take some time to get the ball rolling. However, you get to be your own boss, and typically make more money then other instructors.