Best Sole Proprietor Business Insurance of 2024

Do sole proprietors need business insurance?

In a sole proprietorship, the business and the person are considered one legal entity. Therefore, there is no distinction between your assets and the assets of the business.

Since you don’t have separate business and personal assets, it could be disastrous for you and the company if someone files a lawsuit against you. Therefore, all sole proprietors need business insurance as a safeguard from a slew of potential risks.

Typically, sole proprietors are not legally required to have business insurance as they usually don’t have employees. However, you may regret not having it if you are ever in a legal bind.

The exception to this rule can be workers’s compensation, specifically if you have an employee. In most states, you are required to have workers comp for one or more employees. Also, if you work in a specific industry, like healthcare, you may be required to have liability insurance. It’s best to check with your state’s Department of Labor for specific requirements.

Why should you get sole proprietorship insurance?

Since there is no legal distinction between you and your business, it’s easy for business liabilities to become personal liabilities. In essence, your personal assets are at risk if you are ever sued.

For this reason, it’s crucial to have sole proprietorship insurance to protect yourself.

In fact, ensuring you have appropriate and adequate coverage should be one of the first things you do when starting your business.

What does business insurance for sole proprietors cover?

Sole proprietorship business insurance protects you against potentially devastating threats, such as property damage, medical expenses, and legal costs.

If you ever find yourself unable to work due to illness or injury and you don’t have business insurance to cover you, your business could suffer serious financial ramifications.

Depending on the policy, sole proprietors’ insurance can cover the following:

1. Property damage
2. Employee or customer injury
3. Breach of contract
4. Discrimination against employees
5. Auto accidents
6. Improper use of intellectual property
7. Errors and omissions
8. Legal fees
9. Other risks

Note that even large amounts of business insurance do not protect you and your business against all risks. For example, business insurance does not protect against losses stemming from malfeasance, gross negligence or illegal activities.

For help understanding your coverage needs, speak to an insurance professional before buying coverage.

Best types of business insurance for sole proprietors

There are several types of insurance coverage that sole proprietors can benefit from.

Each type offers different levels of risk management for various aspects related to running your business. The best type for you will depend on the types of services you provide.

These are some of the most common types of business insurance for sole proprietorships:

1. General liability insurance

General liability insurance is the most common type of business insurance. It protects you from financial losses associated with third-party accidents, property damage, and bodily injury to another person. Depending on the policy, general liability can also cover court costs and reputation damage.

Imagine you’re a caterer, and you serve food to a client’s guests. The next day, several guests are ill with food poisoning. General liability insurance can help cover the costs of medical expenses, legal fees, and damages.

2. Professional liability insurance

Professional liability insurance, also known as errors and omissions insurance, safeguards a sole proprietorship from claims of negligence, mistakes, misrepresentation or failure to deliver services. Without it, you’re at risk of having to pay legal fees and damages if someone sues you for making a mistake in your services.

This type of insurance is essential for any business that gives advice or recommendations to customers, as well as those providing professional services or design work. It is commonly used by accountants, attorneys, architects, consultants, and engineers.

3. Sole proprietorship liability insurance

Some insurance providers offer specific plans for sole proprietors. Sole proprietorship liability insurance is the most common.

Sole proprietor liability insurance is typically a combination of general liability and professional liability coverage that is structured according to your business’s specific risks.

It can provide coverage if you’re sued or held liable for damages caused by your business activities. This type of coverage will protect your personal assets from being used to pay for these damages.

However, some insurance companies market sole proprietorship insurance specifically for business owners operating without an incorporated entity.

4. Workers’ compensation

As a sole proprietor, you may be interested in workers’ comp for yourself or if you have an employee working under you.

Workers’ compensation provides financial protection if an employee suffers a work-related illness or injury. It can help cover medical bills, lost wages, and even disability-related expenses.

While Workers’ comp is a legal requirement for companies with employees, it’s not typically required if you are the only one employed through your sole proprietorship. That said, sole proprietors can still have employees, and therefore most states would require you to have a workers’ comp policy. When in doubt, check with your state’s Department of Labor.

5. Commercial property insurance

Commercial property insurance, such as business property insurance, can protect your business’s physical assets, such as furniture, equipment, inventory, and sometimes buildings.

It provides coverage in the case of natural disasters, theft, or other unfortunate events that may cause damage to your business’s physical assets. Without this kind of coverage, you may face major financial losses if something happens to your business property.

6. Business interruption insurance

Business interruption insurance protects business owners, including sole proprietors, against loss of income due to an interruption or suspension of their business activities due to an unforeseen event.

For example, if a natural disaster strikes and makes your place of work temporarily inaccessible, this policy will cover the business against lost profits as long as it is properly insured.

This may be especially useful for businesses that run on thin margins or operate in areas where flooding, hurricanes, or earthquakes are common. For businesses such as these, business interruption insurance can provide a critical cushion to get back up and running after an interruption.

7. Business owner’s policy

A business owner’s policy (BOP) combines business property and business liability insurance. This type of insurance protects you from claims that arise from things like fire, theft, vandalism, and natural disasters.

BOP insurance can also protect you from claims of bodily injury, property damage, and personal injury that arise from your business operations.

To fit your specific business needs, you can also customize your BOP policy by adding additional coverage options, such as workers’ compensation or professional liability insurance. Combining these coverages into one policy usually costs less than if they were bought separately.

8. Cyber liability insurance

Cyber liability insurance protects you from cyber threats, such as data breaches, network security intrusions, and malware. It can help cover the costs associated with restoring lost data, improving security measures, or informing clients of a data breach.

If you routinely handle or store sensitive customer information digitally, getting cyber coverage is a good idea. If your business does not handle sensitive information or operate digitally, then this type of coverage may not be as important. Businesses conducting most of their trading online may also be inclined to purchase e-commerce insurance.

How much does sole proprietor liability insurance cost?

Ultimately, the final cost of sole proprietor liability insurance is dictated by your specific business’s parameters and the type of coverage you opt for.

Premiums can range anywhere from a few hundred dollars up to a few thousands of dollars per year, depending on how big your business is, and its individual business needs and circumstances.

The main factors that affect how much you’ll pay for liability insurance as a sole proprietor include:

1. Your location
2. The services you provide
3. Your annual income
4. The number of employees you have
5. Your claims history
6. Your policy limits and deductible

Is Insurance for insurance for sole proprietors worth it?

Sole proprietor insurance is definitely worth it if you choose the right plan and make sure to use the benefits when the time comes.

Ultimately, insurance is one of those things whose value is only seen when it comes time to use it. While liability insurance can be expensive for sole proprietors, it’s important to remember the protection you get in exchange for the premiums.

The right combination of coverage will protect your business and your personal assets in the event of an accident — ultimately protecting your livelihood as a sole proprietor.

Tips for buying sole proprietor business insurance

When buying any type of business insurance, start by taking an honest look at your business and assessing the specific risks you need to protect yourself against.

1. Establish your needs and limits

Decide what types of insurance and coverage limits are appropriate and necessary for your particular business and the risks associated with your type of operations.

2. Get quotes from several providers.

One great resource for sole proprietors looking for coverage is insurance aggregators, which allow you to easily source quotes from multiple insurers at once, quickly compare various aspects of each proposal and choose the best fit. This makes it easier to get comprehensive coverage without straining your budget.

3. Look to comparison and quote tools for help

Tools like the LA Times Comparison Tool can match you with policy options based on parameters like your personal and business details, desired coverage type, limits, deductibles, and premiums. This way you can get plans tailored specifically to your business needs.

4. Read the Fine Print

Policy language varies by provider, and insurance is notorious for having vague language when it comes to inclusions and exclusions. Make sure you understand what events are covered by each provider.

5. Compare the premiums and deductibles for each of your policy options.

Your premium and deductible will ultimately determine how much you have to pay out-of-pocket when making a claim. Make sure that you are comfortable covering the out-of-pocket costs should you need to file a claim.

Once you pick a policy or policies, go ahead and bind coverage and begin paying your premiums.