What is sole proprietor business insurance?
Sole proprietor insurance is designed for companies that are owned and operated by one person. Sole proprietors are personally responsible for all business debts, taxes, and liabilities. In other words, there is no legal separation between the company and owner.
Business insurance for sole proprietors can shield your personal finances from work-related risks. Call us or start an online quote to learn more.
What is a sole proprietorship?
A sole proprietorship is a business structure where the owner and business are legally the same entity. If you started your company without filing articles of organization with the state, you're likely considered a sole proprietor.
Many small businesses begin as sole proprietorships because they are simpler to start and run. They don't require extra paperwork or separate tax returns, which makes managing operations easier. The owner also has full control over all revenue generated by the business.
Sole proprietor vs. self-employed
All sole proprietors are considered self-employed. However, not all self-employed people are sole proprietors. Key differences include legal obligations and business activities.
A sole proprietor owns their business and is responsible for its assets and debts. They also tend to offer services or goods directly to the public. Self-employment, on the other hand, encompasses anyone who works for themselves, regardless of business structure. For example, a self-employed person may work as an independent contractor or freelancer for another company.
Can sole proprietorships have employees?
A sole proprietorship can hire employees to assist with operations. These businesses will be subject to the same workplace rules and regulations as other companies. They'll have to withhold payroll taxes, follow state laws, and more.
The business owner is not considered an employee and does not receive a salary. Instead, profits are treated as the sole proprietor's personal income.
Why do sole proprietors need insurance?
Sole proprietors need insurance because they are financially responsible for damages involving their business. Business insurance for sole proprietorships protects against costly lawsuits, accidents, and property damage. Without adequate coverage, business owners risk their personal assets being used for legal fees, medical payments, and repair costs.
Sole proprietor insurance coverage can prevent financial hardships from impacting both your business and your family.
Types of sole proprietor insurance
Sole proprietor business insurance can be customized to your company. You'll want to consider your risk exposure and state requirements. In some cases, your business contracts will also list insurance criteria, such as a client requiring commercial property insurance.
The following are common business insurance coverages for single-owner companies:
General liability
Sole proprietorship liability insurance is essential for self-employed business owners. It protects you from third-party claims, including lawsuits, bodily injury, and personal and advertising injury. The cost of general liability insurance will vary depending on the type of goods or services you offer.
Learn more about general liability insurance.
Professional liability
If you provide advice or services, professional liability insurance can protect against claims of negligence or other mistakes. This coverage is also known as also called errors and omissions insurance. It's a good fit for professions like consultants, designers, lawyers, and accountants.
Business owners policy (BOP)
A business owners policy can be a cost-effective solution for sole proprietors because it combines liability and property coverage in one policy. It includes protection for owned or rented commercial buildings and business personal property.
Cyber insurance
Cyber insurance protects sole proprietors who handle sensitive information, such as customer credit card numbers. It covers data breaches, computer attacks, lawsuits, and more. A cyber policy is well-suited for e-commerce retail businesses, consultants, and real estate agents.
Workers' compensation
Workers' compensation insurance protects employees who become injured or sick on the job. Most states don't require it for sole proprietors without employees, but business owners might benefit from this protection against work-related injuries. Sole proprietors with employees could need workers' compensation, depending on their location.
Browse business insurance requirements by state for more information.
Commercial auto
Commercial auto insurance is important if you use a vehicle primarily for business purposes, such as making deliveries, transporting passengers, or hauling tools. Learn how to determine if you need commercial auto insurance.
Transitioning to an LLC
As a sole proprietorship business grows, forming a limited liability company (LLC) can be a smart step. This business structure offers more legal protection for the owner's personal assets because it's considered a separate entity. It also offers other benefits, such as management flexibility and increased financing options.
How much does sole proprietorship insurance cost?
Sole proprietor business insurance costs vary based on the following factors:
- Profession and type of work
- Location
- Number of employees
- Time in business
- Amount of coverage
- Claims history
Your insurance company will assess your business's unique features and risks when determining your sole proprietor business insurance rate. Learn more about how much business insurance costs.
How to get sole proprietor business insurance
Start a quote for sole proprietor business insurance to get the protection you need at a customized rate. You can select the types of insurance, coverage amounts, limits, and deductibles to find the most affordable monthly premium for your business.
If you need advice, one of our licensed agents can walk you through the process.
