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Key Takeaways
- Sole proprietorships are open to unlimited personal liability, which means your financial assets and personal property are at risk if someone sues your business. It is vital to have sole proprietor business insurance.
- Beyond general liability, there are multiple types of insurance that sole proprietors may need to protect themselves financially.
- The cost of insurance for a sole proprietor will vary based on a variety of factors, including what type of business you have, the size of your business and where it is incorporated.
A sole proprietorship is run by one person. There’s no legal difference between the owner and the business, so the owner gets all profits and is personally responsible for all debts. Business finances are reported on the owner’s personal tax return. It requires no formal setup and is common for freelancers and side hustlers. However, the owner faces unlimited personal liability, which is why sole proprietor business insurance is critical.
Protecting your sole proprietorship with business insurance is necessary, primarily due to its unlimited personal liability structure. This structure means your personal assets, such as your home and savings, are vulnerable if a lawsuit is filed against your business. Furthermore, many clients require proof of insurance before hiring you, and certain coverages may be mandated by state law.
Typically referred to as workers’ comp, workers’ compensation insurance covers medical care, lost wages and rehabilitation for job-related employee injuries or illnesses. It protects businesses from lawsuits and supports workers with coverage for physical therapy, prescriptions and death benefits. Federal law mandates workers’ comp for all businesses with employees, though the required coverage varies by state. Texas is the sole exception, and doesn’t require workers’ comp.
Contractual liability insurance helps protect small business owners from claims related to contract issues. If your business is regularly contracted for work, client contract insurance can protect you from financial loss. This coverage may or may not be included in a general liability policy.
If your business owns any type of property, including assets such as offices, warehouses and storage facilities, property insurance is an important part of protecting your financial investment.
General liability insurance, which covers third-party bodily injuries and property damage, costs more for businesses that interact with the public. Consequently, general liability insurance is more expensive for retailers but less costly for independent consultants.
If your business owns one or more vehicles, it is important to have commercial auto insurance. Costs may vary significantly based on the type of business you own. For example, trucking businesses will pay much higher rates than a company that owns a single delivery van.
If you have employees, you may need to offer health insurance as a benefit to attract talent. There are many ways to offer health insurance, including purchasing a group policy from a health insurance company or opting to self-insure.
Errors and omissions insurance is also called E&O insurance or professional liability insurance. It protects professionals and businesses from financial losses due to claims of negligence, mistakes or failure to perform duties. This insurance covers legal defense and damages for issues such as missed deadlines, bad advice or inaccurate work. It is vital for service-based fields, such as information technology, consulting, real estate and accounting.
This coverage pays for lost income and covers expenses if your business is forced to close by a covered peril, such as a fire or wind damage. Businesses that rely on a physical space, such as retailers and restaurants, often pay higher premiums for business interruption insurance. This is due to the potential for significant financial losses if a fire or storm forces them to temporarily close their operations.
The average cost of a business owner’s policy will vary from one company to the next. For example, The Hartford advertises an average rate of $1,687 per year, while Progressive advertises a median rate of $504 per year.
The cost of business insurance depends on a number of factors, including the state your business is incorporated in and the insurance company you choose. The best way to make sure you are paying the lowest possible rate is to compare quotes from multiple companies.
According to Roehr Insurance, a $1 million liability insurance policy could cost anywhere from $300 to $2,500 per year, depending on a variety of factors.
No, sole proprietor business insurance and workers’ comp are two different types of insurance that a business owner might need. Business owners may also need other types of insurance, such as commercial auto insurance or group medical insurance. The best way to make sure you are getting complete coverage you need is to work with an insurance expert.
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