Best Sole Proprietor Business Insurance 2023

Do sole proprietors need business insurance?

If you’re a sole proprietor, it’s a good idea for you to have business insurance.

This type of insurance protects you against potentially devastating threats, such as property damage, medical expenses, and legal costs.

Since you don’t have separate business and personal assets, it could be disastrous for both if someone files a lawsuit against you. Additionally, should you ever be unable to work due to illness or injury, your business could suffer serious financial ramifications. Business insurance can provide invaluable protection against risks such as these.

Why do I need sole proprietorship insurance? 

Since there is no legal distinction between you and your business, it’s easy for business liabilities to become personal liabilities.

Therefore, you need sole proprietorship insurance to protect you from a wide array of risks.

Depending on the policy, business insurance for sole proprietors may cover the following:

• Property damage
• Employee or customer injury
• Breach of contract
• Discrimination against employees
• Auto accidents
• Improper use of intellectual property
• Errors and omissions
• Other risks

Since your personal assets are at risk if you’re sued, it’s crucial to have sole proprietorship insurance to protect yourself. Ensuring you have appropriate and adequate coverage should be one of the first things you do when starting your business.

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.

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:

Sole proprietorship liability insurance

Sole proprietorship liability insurance provides 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.

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

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 reputational 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.

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.

Workers’ compensation

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

Having this type of coverage in place is essential for any sole proprietorship. Should one of your employees get hurt or sick on the job, workers’ comp can protect your finances, your assets, and even provide legal protection.

Workers’ comp is legally required in every state but Texas for businesses with one or more employees. Even if you don’t have employees, you can still take out a workers’ comp policy to protect yourself if you become ill or injured while working.

Commercial property insurance

Commercial property insurance, or business property insurance, protects your business’s physical assets, such as furniture, equipment, inventory, and buildings. It provides coverage in the case of natural disasters, theft, or other unfortunate events that may cause damage to your business assets. Without this kind of coverage, you may face major financial losses if something happens to your business property. 

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.

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.

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.

How much is liability insurance for a sole proprietor?

Premiums can range anywhere from several hundred to thousands of dollars per year, depending on your individual business needs and circumstances. 

Factors that affect how much you’ll pay for liability insurance as a sole proprietor include the following:

• Your location
• The services you provide
• Your annual income
• The number of employees you have
• Your claims history
• Your policy limits and deductible

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 can protect your business and your personal assets in the event of an accident — ultimately protecting your livelihood as a sole proprietor.

Buying business insurance for a sole proprietorship 

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

Decide what types of insurance and coverage limits are appropriate and necessary for your particular business. 

Once you know what types of coverage you need, get quotes from several providers. Policy language varies by provider, so make sure you understand what events are covered by each. Compare the premiums and deductibles for each of your policy options. 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.

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. The LA Times Comparison Tool can find the best policy options for you with a few personal and business details based on coverage type, limit, deductible, and premium. This makes it easier to get comprehensive coverage without straining your budget.