Sole Proprietor Insurance: Cost & Quotes From $11

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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.

Also read:

• Business Insurance for LLC, LLC Insurance
  
• Corporation Insurance: Liability Insurance for Corporations
  
• Startup Insurance: Business Insurance Quotes From $5

Why Does A Sole Proprietor Need Insurance? 

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:  

• Property damage

• Employee or customer injury

• Breach of contract

• Discrimination against employees

• Auto accidents

• Premises liability (someone injured due to property conditions)

• Improper or illegal use of intellectual property

• Errors and omissions

• Breaking labor laws

Sole Proprietorship Insurance Requirements

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:  

• General liability

• Commercial property insurance

• Professional liability (errors & omissions insurance)

• Workers compensation insurance

• Commercial auto 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. 

Sole Proprietor Liability Insurance

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. 

Professional Liability Insurance for Sole Proprietorship

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:

• Negligence

• Misrepresentation

• Missed deadlines

• Violation of fair dealing 

• Inaccurate advice 

• 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

• Repairing 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.

Cyber Liability Insurance for Sole Proprietors 

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:

• Phishing

• Malware

• Employee error

• Ransomware

• Man-in-the-middle attacks

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:

• Public relations

• Legal defense

• Settlements to aggrieved parties 

You can’t use cyber liability insurance to cover third-party personal injury claims and property damage claims.

Employer’s Liability Insurance for Sole Proprietors 

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. 

Employment Practices Liability Insurance for Sole Proprietors 

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. 

Sole Proprietor Workers' Comp

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

• Lost wages

• Rehabilitation

• Prescription drugs 

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.

Sole Proprietor Commercial Property Insurance

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:

• Fire

• Vandalism

• Theft

• Impact

• Aircraft

• Hail

• Wind

• Storm

• Sprinkler leakage

• Sinkhole collapse

• Civil commotion

• Riot

• Lightning

• Volcanic action 

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:

• Earthquakes

• Floods

• Mudslides

• War

• Terrorism 

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 for Sole Proprietors 

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.

Commercial Auto Insurance for Sole Proprietors 

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 for Sole Proprietors 

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. 

Group Health Insurance for Sole Proprietors

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. 

Do You Need Sole Proprietor Medical Insurance?

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. 

Sole Proprietorship Insurance Cost

• 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.