As a sole proprietor, you may face unforeseen events while running your business that could jeopardize your financial security. For instance, you could be sued because you made a mistake that resulted in harm to a client’s reputation, or a customer could be injured while in your workplace and have expensive medical bills you’re responsible for paying.
Insurance for sole proprietors can help pay for unexpected events that could potentially bankrupt both your personal and business assets.
What Is Sole Proprietor Business Insurance?
Sole proprietor business insurance refers to a combination of small business insurance policies
packaged together specifically for businesses operated by sole proprietors. A sole proprietorship is a type of business structure in which the business is owned and run by one person.
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Do Sole Proprietors Need Business Insurance?
No matter your business structure, business insurance is essential, but it’s particularly important for sole proprietors. That’s because when you operate your business as a sole proprietorship, your personal and business assets are treated as one.
In turn, you’ll be personally on the hook for any mistakes or accidents that have to do with your business.
When you carry business insurance, it can pay for financial losses such as legal costs, lawsuits and property repairs caused by problems covered by your policy.
What Does Sole Proprietor Business Insurance Cover?
Sole proprietor insurance groups together different types of small business coverage that cover your small business for a range of issues, such as accidental property damage and injuries to others, damage to your business property and lawsuits.
A business owners policy is a great start on meeting your insurance needs, and can serve as a sound foundation for sole proprietor business insurance. It clusters together three crucial types of small business insurance. Plus, it’s usually less expensive than purchasing each type of insurance on its own.
Here’s what’s typically covered under a business owners policy, or BOP:
Business Liability Insurance
Also known as general liability insurance, business liability insurance helps pay for accidental property damage and injuries caused to others. For example, if a client misses a step on a staircase and takes a tumble at your flower shop, your business liability insurance can pay for your client’s medical bills.
It can also pay for legal costs in case you get slammed with a lawsuit for advertising injury, reputational harm, copyright infringement, libel and slander. Business liability insurance can also compensate you for legal fees if you’re sued for an accident or copyright infringement.
Commercial Property Insurance
Commercial property insurance is also known as business property coverage. It’s a type of coverage that outlines how you’ll be compensated should your business’s physical assets be stolen, damaged or destroyed by a problem covered in your policy.
For example, equipment was stolen from your brick-and-mortar during a burglary, or your business suffered from damaged inventory during a fire. In either instance, commercial property insurance can help pay the bill to replace or repair your assets.
Business Interruption Insurance
If your business is forced to shutter due to an unexpected issue covered by your policy, business interruption insurance covers you financially by helping to replace lost income. Let’s say a car crashes into the side of your building, and you’re forced to close down for a month. In this case, business interruption insurance can provide lost wages to tide you over until you can reopen your doors.
Types of Business Insurance Sole Proprietors Need
Beyond an essential BOP, let’s look at other types of coverage that sole proprietor businesses might need.
Commercial Auto Insurance
Commercial auto insurance works very much like a personal auto insurance policy but for vehicles you use for work. For example, a delivery truck or van you use to transport cargo or company cars. And like a personal car insurance policy, a commercial auto insurance policy offers liability coverage should you injure others or damage property in an accident. Coverage amounts depend on factors such as the type of car, what it’s used for and your driving record.
Commercial Umbrella Insurance
A commercial umbrella insurance policy can provide financial compensation beyond the liability limits in other policies. Once a claim hits its limit on an underlying BOP or general liability insurance policy, a commercial umbrella policy can cover the shortfall.
Cyber Liability Insurance
Cyber liability insurance can compensate you for costs that result from business-related cyberattacks and data breaches should data stored on your computers and networks suffer such an incident. Also called cyber risk insurance or cybersecurity insurance, cyber liability insurance can help cover expenses for data recovery, identity recovery and investigative services should your business get hit by a cyberattack.
The type of coverage can also provide financial protection that impacts your vendors, business partners or customers and can pay for legal fees, settlement costs and mass notifications.
Professional Liability Insurance
Should there be a claim of a mistake in your professional services, even if the claim has no merit, professional liability insurance can cover legal fees, settlements and judgments against your business up to the covered limits.
Also known as errors and omissions insurance, professional liability insurance can provide financial protection should you get sued for negligence, misrepresentation and copyright infringement.
Workers’ Compensation Insurance
Workers’ compensation insurance can cover benefits, lost wages and medical care should one of your workers get hurt or sick on the job. Even if you’re a business of one, in some cases, you might want to get workers’ compensation coverage for yourself.
Some states require independent contractors to have workers’ compensation insurance, even if they are the sole employee of their company.
What’s Not Covered by Sole Proprietor Business Insurance?
Sole proprietor business insurance doesn’t provide coverage for every type of issue. Here’s what’s typically excluded in a standard BOP:
- Auto accidents
- Employee injuries
- Intentional acts or mistakes
- Punitive damages
- Workmanship
- Wrongful termination (You can get employee practice liability insurance to cover this.)
Examples of Sole Proprietor Business Insurance Claims
Here are examples of claims that sole proprietors might run into and the relevant coverage:
| Claim | Coverage type needed |
|---|---|
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A client claims you made a mistake in your work.
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You cause a car accident on the way to deliver some orders.
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A vendor comes in for an introductory business meeting and slips on a rug, hurting their ankle.
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A burglary occurs at your warehouse, and some equipment and inventory is stolen.
|
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Your employee injures their arm while moving some furniture at your business building.
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How Much Does Sole Proprietor Business Insurance Cost?
Sole proprietor business insurance costs an average of $42 per month for general liability insurance, according to Insureon. The average cost for professional liability insurance for sole proprietors is $61 per month and workers compensation costs an average of $45 per month.
Your sole proprietorship business insurance costs will depend on factors such as:
- Business revenue
- Coverage limits and deductible amount
- Location of your business
- Number of employees
- Your industry
- The size of your business
How To Get Sole Proprietor Business Insurance
You can buy sole proprietor business insurance online or over the phone from an insurance company, or you can call an agent who can help you. To find sole proprietor business insurance that fits your needs:
Gather your information together. Before you begin your application process, collect all your information. You’ll want to have your contact information, description of your business activities, number of workers, your business address, proof of how long you’ve been in business and projected annual business revenue for the current year.
Select coverage types. A BOP is an excellent starting point when deciding on business insurance that suits your needs as a sole proprietor. A BOP packages together three essential coverage types—general liability insurance, business interruption insurance and commercial property insurance. This streamlines your insurance and often proves more cost-effective than purchasing these policies individually. You can further tailor your coverage to fit your specific business. For example, if you use a business vehicle for workshops and client visits, you can add commercial auto insurance to your BOP.
Compare quotes. Coverage details and costs can vary significantly among insurance companies. That’s why comparing quotes from multiple small business insurance companies is a smart approach to finding the best policy.
Where Can I Get Sole Proprietorship Insurance?
You can buy insurance for a sole proprietorship from companies that sell small business insurance. You can start with a BOP and add more coverage if necessary. Companies that sell small business insurance include:
- Acuity
- Allianz
- Allstate
- American Family Insurance
- AmTrust Financial
- Auto-Owners Insurance
- Chubb
- Cincinnati Insurance
- Clear Blue Insurance
- CNA
- Erie Insurance
- Farmers Insurance
- Frankenmuth Insurance
- The Hanover
- The Hartford
- Liberty Mutual
- Nationwide
- State Farm
- Travelers
- Utica First Insurance
- Westfield Insurance
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