Do self-employed people need business insurance?
With a sole proprietorship, the business and the individual are considered one legal entity, so there is no distinction between your personal assets and the assets of the business.
Because sole proprietors do not separate business and personal assets, if someone sues you, the consequences can be disastrous for you and your company. Therefore, all sole proprietors should have business insurance to protect themselves against a variety of potential risks.
Self-employed people aren't typically legally required to carry business insurance because they don't employ employees. But if you end up in legal trouble, you may regret not having insurance.
The exception to this rule is workers' compensation insurance if you have employees. Most states require you to have workers' compensation insurance for one or more employees. You may also be required to have liability insurance if you work in certain industries, such as healthcare. We recommend checking with your state's Department of Labor for specific requirements.
Why should I purchase self-employed insurance?
Because there is no legal distinction between you and your company, the company's debts will likely become personal liabilities, meaning that your personal assets will be at risk if you are sued.
This is why it’s important to get personal business insurance to protect yourself.
In fact, one of the first things you should do when starting a business is to ensure that you have proper and adequate compensation.
What does business insurance for sole proprietors cover?
Business insurance for sole proprietors protects you from potentially devastating threats like property damage, medical expenses, and legal costs.
If illness or injury prevents you from working, and you don't have business insurance to cover it, your business could suffer serious financial consequences.
Self-employed insurance can cover the following, depending on the policy:
Property damage Employee or customer injury Breach of contract Employee discrimination Auto accidents Improper use of intellectual property Errors and omissions Litigation costs Other risks
Keep in mind that even a large amount of business insurance will not protect you and your business from all risks. For example, business insurance will not protect against losses resulting from fraud, gross negligence, or illegal acts.
To understand your coverage needs, consult with an insurance professional before purchasing coverage.
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If you need assistance or have any questions, an operator will be happy to assist you.
What type of business insurance is best for self-employed people?
There are several types of insurance available for self-employed individuals.
Each type offers a different level of risk management for various aspects related to running your business, and the best type for you will depend on the type of services you provide.
The most common types of business insurance for sole proprietors are:
1. Liability Insurance
General liability insurance is the most common type of business insurance. It protects you against financial losses related to third-party accidents, property damage, and bodily injury to others. Depending on the policy, general liability insurance can also cover legal costs and damage to your reputation.
Imagine you're a caterer serving food to a client's guests. The next day, several of the guests become ill with food poisoning. General liability insurance can help cover the medical expenses, legal costs, and damages.
2. Professional liability insurance
Professional liability insurance, also known as errors and omissions insurance, protects independent contractors from claims for negligence, mistakes, misrepresentations, and failures to provide services. Without this insurance, you risk having to pay legal costs and damages if someone sues you for making a mistake in their service.
This type of insurance is essential for any business that gives advice or recommendations to clients, or provides professional services or design work. It is often used by accountants, lawyers, architects, consultants and engineers.
3. Personal Business Liability Insurance
Some insurance companies offer special plans for self-employed individuals, the most common being Personal Commercial Liability Insurance.
Personal business liability insurance is usually a combination of general liability and professional liability insurance and is structured according to the specific risks of your business.
It provides coverage if you are sued or held liable for damages caused by your business activities. This type of coverage protects your personal assets from being used to pay for these damages.
However, some insurance companies sell sole proprietorship policies specifically to business owners who operate without incorporating.
4. Workers' Accident Compensation Insurance
If you are self-employed and have employees working for you or for you, you may be interested in workers’ compensation insurance.
Workers' compensation insurance provides financial protection for employees if they suffer a work-related illness or injury. It helps cover medical expenses, lost wages, and even expenses related to disability.
Workers' compensation insurance is a legal requirement for businesses with employees, but it's not usually required if you're the only employee working for yourself. However, most states require independent contractors to have workers' compensation insurance, since independent contractors can have employees. If in doubt, check with your state's Department of Labor.
5. Commercial Property Insurance
Commercial property insurance, such as business property insurance, can protect a business's physical assets, such as furniture, equipment, inventory, and in some cases, the building.
This provides coverage in the event of natural disasters, theft, or other unfortunate events that may damage your company's physical assets. Without this type of coverage, you could face significant financial losses if something were to happen to your company's assets.
6. Business Interruption Insurance
Business interruption insurance protects business owners, including sole proprietors, against loss of income due to the interruption or cessation of business activities due to an unforeseen event.
For example, if a natural disaster occurs that makes your workplace temporarily inaccessible, this insurance will cover your business's loss of profits, as long as it is properly insured.
This can be especially helpful for companies with low margins or that operate in areas with frequent floods, hurricanes or earthquakes, for which business interruption insurance can provide a vital cushion to restart operations after an interruption.
7. Employer's Policy
Business Owners Policy (BOP) combines commercial property insurance and commercial liability insurance. This type of insurance protects you against claims arising from fire, theft, vandalism, natural disasters, and more.
BOP insurance also protects you against bodily injury, property damage, and personal injury claims arising from your business operations.
You can also customize your BOP policy with additional coverage options, such as workers' compensation and professional liability insurance, to fit your specific business needs. Combining these coverages into one policy typically costs less than purchasing them separately.
8. Cyber Liability Insurance
Cyber liability insurance protects you against cyber threats such as data breaches, network security intrusions, malware, etc. It helps cover costs associated with restoring lost data, improving security measures, and notifying clients of a data breach.
If you routinely handle or store sensitive customer information digitally, then cyber insurance may be a good idea. If your business does not handle sensitive information or operate digitally, then this type of insurance may not be as important. Businesses that conduct most of their transactions online may also be inclined to purchase e-commerce insurance.
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If you're not sure which type you need, our operators will be happy to help you.
How much does personal business liability insurance cost?
Ultimately, the ultimate cost of your personal business liability insurance will depend on the parameters of your particular business and the type of coverage you choose.
Premiums can range from a few hundred to a few thousand dollars per year, depending on the size of your company and your individual business needs and circumstances.
Here are the main factors that will affect how much you’ll pay for liability insurance as a sole proprietor:
Your location, services you provide, annual revenue, number of employees, claims history, policy limits and deductibles
Is self-employed insurance worth it?
Self-employed insurance can definitely be worth it if you choose the right plan and make sure you take advantage of its benefits when you need them.
After all, insurance is one of those things that you only know the value of when you actually use it. Liability insurance can be expensive for the self-employed, but it's important not to forget the protection you get in exchange for your premiums.
The right combination of coverage will protect your business and personal assets in the event of an accident, and ultimately protect your livelihood as a self-employed person.
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Call an operator to help calculate your business' insurance premiums.
Tips for buying business insurance for sole proprietors
Purchasing any type of business insurance starts with an honest review of your business and assessing the specific risks you need to protect yourself from.
1. Identify your needs and limitations
Determine the types and coverage limits of insurance that are appropriate and necessary for the risks associated with your particular business and type of operations.
2. Get quotes from multiple providers.
For self-employed people looking for insurance, insurance aggregators are a great resource. They allow you to easily get quotes from multiple insurance companies at once and quickly compare different aspects of each proposal to choose the one that's best for you. This makes it easy to get comprehensive insurance without straining your budget.
3. Use comparison and quote tools
Tools like the LA Times Comparison Tool allow you to match policy options based on parameters such as personal and business details, desired coverage type, limits, deductibles, premiums, etc. This allows you to get a plan that is specifically tailored to your business needs.
4. Read the fine print
Insurance policy wording varies from insurer to insurer and is notoriously vague regarding coverage and exclusions, so make sure you understand what events each insurer covers.
5. Compare the premiums and deductibles for each insurance option.
Your premium and deductible will determine how much you will ultimately have to pay out of pocket when making a claim, so make sure you can afford the out-of-pocket costs if you need to make a claim.
Once you have selected one or more policies, you sign a policy and start paying your premiums.