A sole proprietorship is a business that is owned by one person. It is the simplest type of business. As such, it is the most common business structure. However, there are some downfalls to sole proprietorships.
The biggest downfall of sole proprietorships is that they are not incorporated. In other words, the business is not its own legal entity. That means the owner is liable for the actions of the company, which means the sole proprietor needs insurance.
On the positive side of things, sole proprietors get to keep all profits after taxes. The simple business structure makes planning and strategic maneuvering an easier process. Owners don't have to deal with the fees, extra taxes, and accounting or legal expenses of a corporation.
In summary, the sole proprietor maintains total control of his or her company but also assumes total responsibility. All businesses must have insurance but for self-run businesses, not having small business insurance for sole proprietor could mean losing everything.
In this guide, learn about sole pro insurance. Know how it works, how much premiums cost, and the best companies.
Many sole proprietors make the mistake of thinking they don't need insurance. Maybe their industry is risk-averse, and they don't see the possibility of a lawsuit as a threat.
But according to a 2020 report from the U.S. Chamber Institute for Legal Reform, 43% of small businesses surveyed were involved in lawsuits or threatened with one.
Why sole proprietors need insurance stems from multiple risks that all businesses face for which they can be held liable. These include:
Employee or customer injury
Breach of contract
Discrimination against employees
Premises liability (someone injured due to property conditions)
Improper or illegal use of intellectual property
Errors and omissions
Breaking labor laws
A sole proprietorship does not have any insurance requirements. States typically require workers' compensation insurance when there are a certain number of employees. Oftentimes, small business owners are forced to get insurance due to lender or licensure requirements. In many cases, they are free to take on the risk of business ownership with no financial protection.
Sole proprietors must consider some basic insurance in order to protect themselves from a lawsuit. The policies any sole proprietor must think of purchasing are:
Commercial property insurance
Professional liability (errors & omissions insurance)
Workers compensation insurance
There are other insurance options available for specific industries that are not listed here, but this is a comprehensive list of typical policies a sole proprietorship will need.
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Having responsibility over the injuries or property damage sustained by a customer, vendor, or any other third party is one of the most problematic exposures as a sole proprietor.
The settlement for injury or property damage is always greater than what your business earns. And so, it’s important to get an insurance policy that covers the costs of personal injury claims or property damage claims. General liability insurance for sole proprietor provides the protection you need.
This policy provides the money you can use to cover the resulting costs of personal injury claims and property damage claims filed by customers, vendors, and other third parties. Here are some situations where you’ll find sole proprietorship liability insurance very useful:
Slip and fall accidents happening on your business premises
You injured the client or damaged the property of a client while providing a service
A third party accused your business of causing injuries or property damage with its day-to-day operations
General liability insurance for sole proprietor is very important. This is because it allows you to wrap up a personal injury claim or property damage claim. It doesn’t really matter how a peril happened. If you’re held liable for damages or injuries, general liability insurance covers them.
So what particular costs does general liability insurance for a sole proprietorship cover? This type of sole proprietor business insurance pays for:
The medical treatment of the aggrieved party who filed a personal injury claim against your business
Reimbursements for the property that your business destroyed or allegedly destroyed
Attorney fees, administrative costs, settlements, and other legal expenses
You can add specific coverages to general liability insurance. The following are what you can include in the language of a general liability policy for sole proprietors:
Advertising injury coverage-Advertising injury coverage, if added, allows general liability insurance to cover claims filed because your business committed or allegedly committed copyright infringement, slander, or libel
Rented premises liability coverage-Add rented premises liability coverage to general liability insurance so that it will refund the property owner on your behalf if the commercial space you’re renting or leasing is damaged by fire
Products and completed operations coverage-By including products and completed operations coverage, general liability insurance will cover personal injury claims or property damage claims filed after you completely delivered a product or service
Now let’s talk about the amount of money you can get from general liability insurance. The general liability insurance, carriers underwrite for sole proprietors, has a $1 million-$2 million per occurrence limit and an aggregate limit of $2 million. But still, you can find companies underwriting a general liability policy for sole proprietors having $300,000 per occurrence limit and a $1 million aggregate limit.
Many states require general liability insurance for sole proprietorships in order to get a license to do business. But even if it is not a requirement in your case, getting sole proprietorship liability insurance is a smart decision.
Purchase professional liability insurance if you’re a sole proprietor of a business providing specialized services to generate revenues. This type of sole proprietor business insurance is best purchased together with general liability insurance.
So why do we say so? Professional liability insurance for sole proprietorship provides protection when a client sues because you caused economic or financial losses by committing any of the following while working, which are perils never covered under a general liability policy:
Violation of fair dealing
Breach of confidentiality
So who will find professional liability insurance useful? This business insurance for sole proprietors is extremely helpful if you’re sole proprietorship is:
Installing alarms and other appliances
Providing legal or financial services
Cleaning buildings and other residential properties
Creating gardens and landscapes
You can purchase professional liability insurance as an occurrence or claims-made policy. We recommend you purchase professional liability insurance as an occurrence policy. An occurrence professional liability insurance provides coverage even if you decide to report a covered peril after it has happened. Also, it provides protection even if it has expired so long as the peril took place during its effective duration.
Do you own a website for marketing products and fostering customer relationships? Do you use a digital platform to collect payments from clients? If this is the case, you handle client data. Purchase cyber liability insurance, and protect yourself from the worst if client data is exposed.
Cyber liability insurance kicks in if client social security numbers, addresses, bank accounts, and other sensitive data you’re handling is leaked because of:
This insurance provides $1 million-$10 million coverage for each instance of covered perils. The total amount of coverage you can get from the policy is $2 million-$10 million. Particular costs covered by cyber liability insurance are:
Settlements to aggrieved parties
You can’t use cyber liability insurance to cover third-party personal injury claims and property damage claims.
An employee can sue for negligence if you failed to provide safe working conditions. In such a situation, employer’s liability insurance helps. This will pay for administrative costs, attorney fees, settlements, and other legal expenses if an employee files a claim against your business after sustaining a work-related injury or disease.
You can use employment practices liability insurance to cover attorney fees, administrative costs, and other legal expenses if an employee sues you for sexual harassment, discrimination, missed employment benefits, missed wages, wrongful termination, and other acts considered as violations of employee rights.
You might be asking yourself, as a sole proprietor do I need workers comp? The answer is yes, if you have employees, and a sole pro workers comp policy will provide peace of mind for your staff.
A workers compensation for sole proprietor is a necessary coverage for self-run businesses that have employees, and depending on the state, it may be a requirement.
This is the coverage you provide for your employees in case they are hurt and injured on the job. Check with local state regulators how much workers compensation insurance for sole proprietors would be best for you.
A sole proprietor workers comp policy covers several expenses, including:
Cost of medical treatment
When shopping for workers comp insurance for sole proprietor, you might find it sold as a standalone policy or bundled together with general liability and commercial property insurance in a business owner’s policy.
Sole proprietor workman's comp policies are necessary if required by the state, or else an employer could face fines or even jail time. Sole proprietor workers' compensation insurance ensures that your business is running ethically and taking care of employees.
The cost of workman’s comp for sole proprietor is expensive because it takes your business’s annual average payroll into account when determining premiums. But note that you can save money by buying a pay as you go workers' compensation insurance.
A pay-as-you-go workers' compensation insurance determines premiums based on your business’s monthly payroll. As a result, premiums are cheaper and more accurate.
Having commercial property insurance ready and waiting is smart if you use a rented, leased, or owned, commercial building. So how does commercial property insurance help you? You can claim this insurance when:
Structures or specific locations of your business’s building is damaged
Your business’s entire building is damaged
A sole proprietor’s commercial building must have been damaged or destroyed by any of the following for commercial property insurance to take effect:
You must understand that commercial property insurance doesn’t provide absolute protection for your sole proprietorship. It can’t help if your business is damaged or destroyed by:
Stocks and contents coverage can be introduced to the terms of commercial property insurance. If inventory, furniture, and other valuable items inside your business’s commercial building are destroyed or damaged by the aforementioned perils, stocks and contents coverage will reimburse your losses.
Equipment and tools coverage is another add-on to commercial property insurance. It covers losses if the specialty equipment you use to manufacture a product or provide a service is damaged by the perils stated above.
It’s up to you how much money to get from commercial property insurance. But as a recommendation, it’s smart for you to get $30,000-$50,000 coverage from this type of sole pro insurance policy.
Business owner's policy (BOP), blends both commercial property insurance and general liability insurance into one policy in order to make them easier to manage and more affordable. A BOP is an excellent option if you’re a sole proprietor who doesn’t know what types of coverage are the most useful for his or her business.
One of the advantages of this business insurance for sole proprietor is that it may offer other business insurance products such as business interruption insurance, cyber insurance, workers compensation insurance, and errors and omissions insurance for sole proprietor. That said, a business owner’s policy is great because it provides the most useful insurance products under one roof.
The second advantage of a business owner’s policy is that its rate is fixed. No matter how many insurance products are included, its cost is always cheaper than when you bought different types of business insurance individually or bundled them yourself through a custom plan.
As for its final perk, a business owner’s policy is easy to manage. Since all business insurance is bundled, it’s easier for you to cancel a policy, change limits, add additional insureds, and track the status of your insurance policies.
Get commercial auto insurance if you own a vehicle and use it for commercial purposes. A typical commercial auto insurance for sole proprietors offers the following protections:
Auto liability coverage-Auto liability coverage kicks in if your commercial vehicle causes an accident. This will pay for the treatment or reimburse the damaged properties of the victims. If the aggrieved parties take legal recourse, auto liability coverage will pay for attorney fees, administrative costs, and other related expenses on your behalf
Physical damage coverage-Physical damage coverage takes care of the repair or replacement of your commercial vehicle’s parts. This is available as a collision policy or comprehensive policy. When bought as a collision policy, coverage only applies if your commercial vehicle sustained damage because of a crash. If bought as a comprehensive policy, physical damage coverage only works when fire, flood, storm, hail, winds, vandalism, theft, and other covered perils damaged the commercial vehicle
Uninsured/underinsured motorist coverage-Uninsured/underinsured motorist coverage covers expenses if your commercial vehicle got involved in an accident caused by another vehicle whose driver isn’t insured or doesn’t have enough insurance
Medical payments coverage-Medical payments coverage takes care of the treatment, ambulance fees, and emergency room fees of the driver and passengers if your commercial vehicle got involved in an accident caused by another driver. You get this coverage in a fault state
Personal injury protection-Personal injury protection also works the same way as medical payments coverage but it also pays for after-hospital visits, and lost wages. You get this coverage in a “no fault state”
Business interruption insurance takes care of expenses if you need to close temporarily to renovate, relocate, or wait for an economic crisis to pass. In practice, this insurance will pay for loans, payroll, mortgage, and other operational costs while your business isn’t generating income. Note that business interruption insurance has a co-insurance clause. If you don’t want this, consider getting loss of income coverage.
The insurance needs of a sole proprietor change greatly when there are employees, but not all sole proprietors are required to offer sole proprietorship group health insurance. Depending on state and federal requirements, sole proprietors may have to offer full-time employees this benefit.
For example, the Affordable Care Act stipulates that businesses with over 50 full-time employees must offer health insurance.
Group health insurance for sole proprietors is more affordable than individual health insurance because the risk is spread among a pool of employees rather than one person. Often, the only way an individual can afford private health insurance is through a group health policy provided by the employer.
Of course, health insurance is never inexpensive, which is why many sole proprietors with small-scale businesses don't offer it to their employees. If you do some research, you will be able to find the best health insurance for sole proprietorship to meet your budgetary needs.
If you are a sole proprietor with no employees, then you won't qualify for group health insurance. Health insurance for sole proprietorship is often only considered for employees.
Some medical insurance for sole proprietorship policies may offer a reduced rate for self-employed individuals. There is also a tax deduction allowed for sole proprietor health insurance who ultimately have to buy individual policies for themselves.
Business owners may also want to consider disability insurance for sole proprietors in case something happens that prevents them from working. Small business health insurance sole proprietor style is different from the health insurance for corporations because it may be the only thing that keeps enough people working to continue the business.
The average cost of sole proprietor insurance is $39.58 a month or $474.96 a year for a $1 million general liability coverage
Sole proprietors pay $859.17 a month or $10,310 a year for group health insurance
Workers comp for sole proprietors is $45 a month or $540 a year
When looking at sole proprietorship insurance cost, it pays to shop. Sole proprietorship liability insurance cost must be looked at as a necessary item to budget, but you'll want to see how many other coverages you can afford. Below are a few insurance companies where you might want to start.
|Monthly Rate||Annual Rate||Best for|
|CoverWallet||$11||$132||Sole proprietor insurance quote comparison online|
|Tivly||$15||$180||Getting sole proprietorship insurance quotes over the phone |
|Thimble||$17.50||$210||Short-term sole proprietor insurance|
|Next||$19||$228||Sole proprietor insurance with discount options|
|Hiscox||$30||$360||Sole proprietorship insurance with expert advice|
Consider comparing quotes to find the best coverage at the most reasonable rate. Start by clicking the "Get Quotes" button on this page.
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Here are some reviews of the best sole proprietor insurance companies. Know their pros, cons, and monthly rate for a $1 million general liability coverage.
CoverWallet allows you to compare sole proprietor insurance quotes online
Easy online policy management
Cancel a policy anytime
You can purchase terrorism coverage from this company
Not an insurance carrier but a broker selling the insurance products of its partners
If you are looking for a full-service insurance company to meet your sole proprietorship insurance needs, CoverWallet has got you covered. From restaurants to beauty salons, they know the insurance that will cover you in your industry. They also have policies starting at $11! That's only $132 a year less paid in full discount when applicable.
Best for: Sole proprietor insurance quote comparison online
Average cost: $11 per month
Our rating: 10/10
Get a quote over the phone
Helps you come up with the most effective insurance program for your sole proprietorship
No online quotes
Tivly (formerly CommercialInsurance.NET) provides coverage for sole proprietorships in different industries. And so, you’re sure to get covered by this company no matter what your business profile is. Policies offered by Tivly's specialized sole proprietor insurance are general liability, workers' compensation, commercial property, cyber liability, commercial auto, business hazard insurance for sole proprietorship, and more.
Call Tivly now to get a quote over the phone and know how much you’ll pay for premiums.
Best for: Getting sole proprietorship insurance quotes over the phone
Average cost: $15 per month
Our rating: 10/10
Annual and short-term sole proprietor insurance
General liability insurance for sole proprietors has no deductibles
ACORD 25 certificate of insurance
Doesn’t sell cyber liability and commercial auto insurance for sole proprietors
Thimble sells insurance for very small sole proprietorships in different industries such as food, retail, hospitality, and professional services. This company’s specialized sole proprietor insurance offers a general liability policy having a $1 million-$2 million limit. You can also purchase commercial property and workers compensation insurance. Note that Thimble also sells short-term coverage, which is an hourly, daily, or monthly general liability insurance.
Best for: Short-term sole proprietor insurance
Average cost: $17.50 per month
Our rating: 9/10
Offers discounts if you buy policies in bundles
No cancellation fee
Next handles things digitally so policyholders used to traditional insurance processes might have to adjust in how Next does things
Next Insurance offers all the business insurance policies you will need for your company, and they offer a 10% discount when you bundle policies. The company advertises policies starting at $19 a month. That's an annual rate of $228.
Best for: Sole proprietor insurance with discount options
Average cost: $19 per month
Our rating: 9/10
Can cover you regardless of your business industry
Offers high policy limits
Not all insurance products can be purchased online
Hiscox Insurance is a popular choice for many business owners because they offer sound insurance advice for sole proprietorships. Their advertised cost of some general liability policies for different kinds of sole proprietorships is only $30 per month. That's $360 per year.
Best for: Sole proprietorship insurance with expert advice
Average cost: $30 per month
Our rating: 8/10
When you are looking for the best insurance for sole proprietorship, having the right policies can mean the difference between financial security and financial ruin. Business liability insurance for sole proprietor may be all that you need, but there are other equally helpful policies such as workers' compensation insurance, commercial property insurance, cyber liability insurance, and commercial auto insurance. That’s why you want to reach out to a company that will get you the right insurance plan to meet your needs.
Lonnie Bell Insuranker
Policy Type: Business Insurance
Company name: Employers Insurance
Use anyone except Employers. Period. They are non-transparent and shameful. After I complained long enough to warrant a call from a supervisor, the supervisor called back from a PRIVATE NUMBER (no caller ID), left a message that they are not reversing their decision (without any communication with me), and failed to leave a phone number for me to call back. She was hiding! They also fact find via email and phone calls, which is terrific for speed and communication. However, after setting a precedence of email or phone calls, they send time sensitive information via email, without any heads up... they are hoping you miss it and forfeit via expiration. Evil policies. Go elsewhere.
This place is an absolute joke of a company and should be ashamed of the way they conduct business. I was hurt on the job at the end of July and it took them just shy of 7 weeks to issue out a paycheck to me. Yes the amount was back dated but still. Not many have the luxury of not receiving a paycheck for almost 2 months. To top it all off, the original adjuster marked me down for the wrong state which caused a problem from the get go, I've had 3 different adjusters now since each one can't seem to figure out the simplicity of my claim. All my paperwork which includes, my job, house, and drs visits all are from the same state and city but yet some how I have been filed under a completely different state 1500 miles away. They do not answer your phone calls or emails no matter how many you leave. I've had to escalate my frustrations to the supervisors of each of these individuals in order to even get some kind of response. I've had more communication and information given to me about my claim from the customer service representatives then the actual adjusters.......... please tell me how that works?! A serious overhaul needs to happen here in order to serve your clients the way they deserve to be taken care of. 10/10 do not recommend this company to a single soul on earth
I have never had the displeasure of working with a more incompetent and disrespectful person in my life. I’m an injured worker and the adjuster that was assigned to my case was named Carrie Furgeson. In the past 6 weeks that I’ve been injured and out of work I have only been able to get ahold of her twice, not for lack of trying. I have left countless voicemails, countless emails, and she ignores them all. When I am finally able to get ahold of her I’m greeted with terrible customer service. She is rude, she talks over me and I’m hardly able to get a word in edgewise. She spelled my name wrong on my documents even after I spelled it for her properly countless times, this caused a whole new issue with my bank. I have bill collectors from the hospital calling me demanding payment and Carrie Furgeson won’t do a single thing to help, or to get them paid. All of my documentation is in Colorado, my job is in Colorado, my address is in Colorado, all my Dr offices and appointments have been in Colorado and Carrie still managed to hold my claim because she wasn’t sure what state she needed to file it under. It’s been 6 weeks since my Injury and my company still hasn’t received the wage paperwork to fill out so they can get me my correct wages. When she’s not ignoring me she’s answering my questions with “I don’t know” well I don’t know how she got this job, because apparently she doesn’t know anything about it. She is a disgusting morose individual inside and out and I genuinely wish her the worst in all of her future endeavors. I highly recommend you don’t use this company. Please if you are a business owner and your looking into this company please don’t use them. I’m sure they have the cheapest payment and that’s why companies use them in the first place, but you will be doing your employees a grave disservice by forcing them to venture into this absolute dumpster fire of a company. I would rate 0/5 if possible but 1 was the lowest I was allowed.
Their general liability insurance purchase process is simply the best online experience I've ever had in my life!
As long as they cover your line of business, you're literally covered! best rates, best coverage, best online experience, best professionals, can't be happier that I chose them!