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Sole Proprietor Business Insurance: Necessary Coverage, Costs, & More

Insurance
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Joey Randazzo
Joey Randazzo
Last Edited:
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Published:
Jan 23, 2023
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Sole Proprietor Business Insurance: Necessary Coverage, Costs, & More

When you own a sole proprietorship, you’re the head honcho. 

You’re the one responsible for operating your business, managing your employees — and choosing the best sole proprietor business insurance.

But that’s easier said than done. 

How do you know what insurance coverage your business needs and the steps to take to purchase your policies?

If you’re looking for more information on business insurance for your sole proprietorship, we’ve got you covered. 

We take a look at why a sole proprietor needs business insurance, nine types of insurance policies you may benefit from, and how to purchase small business insurance for a sole proprietor. 

Can You Get Business Insurance as a Sole Proprietor?

Yes! 

Business insurance is available to all types of businesses, including sole proprietorships.

Do Sole Proprietors Need Business Insurance?

A sole proprietorship is one of the most simple of all business structures. Since it’s owned and run by one person, there’s no distinction between the owner and the business. 

But just like any other business owner, a sole proprietor faces risks like:

  • Lawsuits
  • Property damage
  • Employee injuries
  • Tax issues; and
  • Auto accidents with a company-owned car

However, unlike LLCs and corporations, for sole proprietors, these business liabilities can easily turn into personal liabilities.

Sole proprietor business insurance is the easiest way to protect your home and savings should an issue arise with your business. 

What Kinds of Insurance Do Sole Proprietorships Need? 

The best insurance policies for your sole proprietorship will depend on your business, but here are common examples of business insurance for sole proprietors :

  • General liability insurance
  • Errors and omissions insurance
  • Business owner’s insurance
  • Workers’ compensation insurance
  • Commercial property insurance
  • Commercial auto insurance
  • Cybersecurity insurance
  • Business interruption insurance
  • Commercial umbrella insurance

How To Decide Which Type of Insurance Your Sole Proprietorship Needs

As a sole proprietor, you must spend time researching sole proprietorship business insurance before purchasing a policy.

Talk with other sole proprietors in your field and find out their recommendations for the best companies to work with. 

Use online reviews to research providers. If you decide to go with an agent, find one that is reputable and knowledgeable about the complexities of a sole proprietorship and the unique risks your business faces. 

And remember, while insurance companies may use the same name for their types of policies, different companies' policies won’t offer the same level of coverage. 

9 Types of Insurance Policies Your Sole Proprietorship May Benefit From

 #1: General Liability Insurance

General liability insurance policies protect you and your business against claims involving …

  • Bodily injury
  • Medical expenses
  • Property damage; and
  • Lawsuits

Without general liability insurance, you may be stuck paying these costs out of pocket. 

#2: Errors and Omissions Insurance

Errors and omissions insurance is also referred to as professional liability insurance. 

E&O insurance is critical for covering any errors that may occur in the professional services you offer your clients. 

For example, it can help cover lawsuits and legal settlements over things such as:

  • Negligence
  • Misrepresentation
  • Inaccurate advice
  • Missed deadlines
  • Incomplete work; and
  • Data breaches

#3: Business Owner’s Insurance

A business owner’s policy, or BOP insurance, combines general liability and commercial property insurance into one more affordable package.

Business owner’s insurance creates a powerful insurance policy, and covers things such as legal fees and additional costs that may accompany:

  • Defamation lawsuits
  • Customer lawsuits
  • Replacing lost or damaged business property; and
  • Replacing income if your business’s damaged or stolen property forces you to halt operations

#4: Workers’ Compensation Insurance

A workers’ compensation insurance policy allows you to provide benefits to your employees in the instance of work-related illnesses or injuries. 

Worker’s comp benefits reduce your liability by helping cover things like:

  • Medical care
  • Lost wages
  • Disability benefits; and
  • Funeral expenses

As a sole proprietor, business insurance for worker’s compensation is likely required by your state if you have one or more employees. If you’re a one-person show, you likely won’t need a worker’s comp policy

#5: Commercial Property Insurance

Commercial property insurance can help protect your business’s physical assets, including:

  • Business furniture and equipment, like computers
  • Inventory; and
  • Your business’ physical structure

If your business is ever threatened by … 

  • Vandalism
  • Fire
  • Wind
  • Water; or
  • Natural disaster

… your commercial property insurance policy could help provide the financial assistance you need to keep your business up and running.

#6: Commercial Auto Insurance

If you have business vehicles, commercial auto insurance is an essential part of protecting your business from accident-related expenses. 

It provides coverage if you are involved in an accident in a business-owned vehicle, and may also provide coverage for accidents in your personal vehicle while it is being used for work-related purposes.

A commercial auto insurance policy covers: 

  • Underinsured motorist
  • Collision coverage
  • Comprehensive coverage
  • Towing
  • Reimbursement for a rental vehicle
  • Injuries
  • Medical bills
  • Legal fees
  • Damage to your vehicle; and 
  • Property damage due to one of your commercial vehicles

#7: Cybersecurity Insurance

If you store electronic data, cybersecurity insurance is a must-have in your sole proprietor business insurance toolbox.

Cybersecurity insurance can protect your business from potentially costly out-of-pocket expenses should your customer information be lost, stolen, or otherwise compromised in a cyberattack.

Your cybersecurity policy can help cover the cost of:

  • Notifying your customers about a breach
  • Legal defense
  • Business interruption loss reimbursement
  • Cyber extortion defense; and
  • Forensic support

#8: Business Interruption Insurance

If you ever have to temporarily close your business due to physical damage or loss of your business property, you will be thankful for your business interruption insurance policy.

A business interruption policy supplements your business' income if you are unable to operate due to a covered loss.

A business interruption insurance for sole proprietors is helpful for:

  • Taking care of payroll
  • Paying for necessary operating expenses
  • Replacing lost net income during the period of repair or rebuilding 
  • Paying for relocation expenses; and 
  • Covering advertising fees if you reopen in a temporary location

#9: Commercial Umbrella Insurance

A commercial umbrella policy provides an extra layer of liability protection by taking care of costs that may go beyond your other liability coverage limits.

Commercial umbrella insurance supplements your other liability coverages by taking over when its coverage limits have been reached.

Without commercial umbrella insurance coverage, you would be left paying out of pocket for anything that goes over your policy limits, including:

  • Medical bills
  • Legal costs
  • Damage to other people’s property; and
  • Judgments and settlements

How Much Does Business Insurance for a Sole Proprietorship Cost?

A myriad of business types fall under the title of a sole proprietorship.

For this reason, there is no one set cost for sole proprietorship business insurance. 

The cost of business insurance for a sole proprietor will depend on several factors, including:

  • Risk exposure: Businesses with more risk will pay more for insurance.
  • Coverage limits: The higher your policy limits, the more you’ll pay for coverage.
  • Location: If you operate in a high-crime area, you’ll probably pay more.
  • Insurance claims history: Typically, the more claims you’ve had, the higher your rates will be.

How To Purchase Business Insurance Policies as a Sole Proprietor

Are you ready to shop for sole proprietor business insurance? Here are the steps you’ll want to take to ensure you get the coverage you need at the best possible price:

  1. Gather your documents. Pull all the particulars of your business together, including:
  • Location
  • Total number of employees
  • Gross annual sales
  • Payroll 
  • Tools and equipment 
  • Assets; and
  • The age of your building
  1. Shop around. It’s been said you should get three to five quotes from different insurance providers before landing on the one that’s best for you.

As you’re comparing policies, you’ll want to consider details such as:

  • Policy coverage: What exactly does this policy cover? What does it not cover? Be sure you understand the policy’s details, so you know you’re getting the level of coverage your business needs.
  • Limits of liability: How much of a loss does the policy cover? If you’re a larger sole proprietorship or one with high risks, it may be wise to go with a higher limit.
  • Price: How much does the policy cost? Is there a deductible you have to meet before payment kicks in? If so, how much?
  • Reviews: Google the reviews and ratings of an insurance company before you decide to buy a policy from them. You can also look into any complaints that may have been filed against an insurance provider by searching the National Association of Insurance Commissioners’ website.
  1. Purchase your policy/policies. This may be done by: 
  • Contacting insurance providers directly
  • Going through a broker; or
  • Using an online marketplace
  1. Reevaluate your coverage each year before renewing. Each year, you’ll want to reevaluate your insurance coverage to ensure you still have the right policy for your sole proprietorship.

Ask yourself questions like:

  • Has my coverage been adequate this year?
  • Can I find the same coverage at a better price?
  • Have I been pleased with the customer care of my existing provider?
  • Does my business have any new risks in the coming year?
  • Am I opening a new location?
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