Sole Proprietorship Insurance
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Liability insurance for sole proprietorship
As a sole proprietor, you’re used to wearing many different hats to get the job done. You look after every aspect of your business and enjoy the perks of working on your own, under your terms. If you’re just starting out your own business or working as a freelancer full-time, it’s vital to ensure you are set up for success.
Some independent business owners assume their home insurance can cover their business activities. The reality is, that most homeowner’s policies exclude business-related claims or have a low monetary limit that won’t provide adequate coverage. Furthermore, as a sole proprietor, there isn’t a separate legal entity between your personal and business assets. In simple terms, this means you’re responsible for all the risks of your business – and those can extend to your personal property and assets. Scary stuff, and that’s why it’s important to protect your business.
What is sole proprietorship insurance?
Specifically designed for the bustling solopreneur, sole proprietorship insurance is a policy package that protects against risks associated with operating an unincorporated business, such as negligence, third-party injuries or property damage. This coverage is designed to provide liability coverage for sole proprietors across many different industries.
What does it cover?
Different businesses have different risks; for example, a freelance writer or designer won’t require the same type of coverage as an independent construction contractor such as a plumber or handyman. However, we know what it takes to find the perfect coverage for your specific business.
We believe a comprehensive policy for your sole proprietorship should cover the risks you are most likely to face. Those risks will vary by the service or product you offer and the industry. We’ve listed the following core coverages that can apply to most business owners:
- Professional Liability Insurance: Also known as Errors and Omissions (E&O) Insurance, this coverage protects against claims alleging negligence, misconduct, or failure to deliver a service as promised. Professional Liability Insurance is essential for any sole proprietorship offering advice or service for a fee – such as a freelancing designer. It may provide legal expense coverage in the event of financial loss due to your negligence. Suppose you were a designer freelancing for a new business. You created a logo that looked too similar to a competitor’s logo, who’s now threatening to sue your client for copyright infringement. You could be responsible for the lawsuit against the business. In this case, Professional Liability Insurance could cover the legal fees and monetary judgement.
- Cyber Liability Insurance: Cybersecurity is increasingly critical for businesses of all sizes. In fact, in a recent report published by the FBI, cybercrime has increased by 400% since the onset of COVID-19, with small businesses increasingly targeted. Cyber Liability Insurance provides coverage for costs associated with electronic incidents involving your technology systems and customer data. Suppose your customer data, such as personal and financial details, are compromised due to a cyber-attack (e.g., phishing, hacking). Cyber Liability Insurance could provide coverage for notification costs, legal expenses, and risk management fees.
- Commercial General Liability Insurance: Also known as “slip-and-fall insurance,” protects against claims alleging third-party property damage or bodily injuries. Many people who work from home may assume their home insurance could cover this, but it’s unlikely if an accident occurs due to business activity. Suppose you’re an independent gardener working in a client’s backyard and accidentally damage the piping on an expensive water feature. CGL may provide financial coverage to repair or replace the broken water feature.
- Product Liability Insurance: If you sell, manufacture, or distribute a product, Product Liability Insurance can provide coverage for property damage or bodily injury caused due to a fault in your product by design, manufacturing, or a marketing defect. For example, you run a small online art store specializing in eco-friendly wall paint. A client complained that your paint caused harmful fumes after painting their living room and hallway, meaning that they couldn’t stay in their home for over a week and threatened to sue. In this case, Product Liability Insurance could cover the legal fees and monetary judgement.
- Commercial Property Insurance: Commercial Property Insurance protects your physical location and your business’s most critical physical assets – including equipment, technology, stock, and inventory. For example, if you work as a contract content writer, and your work laptop and office supplies were damaged in a flood. Commercial Property Insurance may provide financial coverage to repair or replace your damaged business equipment.
- Equipment Breakdown Insurance: Equipment Breakdown Insurance covers the cost of repairing or replacing equipment damaged due to an electrical or mechanical breakdown. This coverage is not to be confused with Commercial Property Insurance, which covers loss or damage due to an insured event (e.g., fire, theft). For example, say you’ve started a T-shirt printing business and your industrial-grade printer short circuits unexpectedly due to an electrical fault. Equipment Breakdown Insurance could cover the cost to repair or replace the printer.
How much does it cost?
On average, a sole proprietorship can anticipate premiums starting at $450 annually for general liability insurance with a $2M limit. There are many factors that most insurance companies will consider when determining your risk premium, including:
- Annual and Projected Revenue
- Industry and Profession
- Services and Products Offered
- Training and Years of Experience
- Claims History
Want to make sure you get the best price for your business? So do we. That’s why we’ve partnered with over fifty insurance providers to offer you different options that suit your business needs at the best price.
Common claims scenarios
Problem: You’re a general contractor installing a skylight in a client’s bathroom. You accidentally drop a heavy wrench through the roof opening into their bathtub, causing it to crack the bathtub beyond repair.
Outcome: Your customer successfully sues your business for damage to their bathtub. Your Commercial General Liability Insurance may cover the $5,000 cost of replacing the bathtub.
Problem: You’re an independent furnisher; a chest of drawers you created and sold to a customer a week ago has collapsed due to loose joint connections, breaking some of the valuable contents within it. Your customer sues you for third-party physical damage due to a fault in the design of your product.
Outcome: Your Product Liability Insurance could cover any legal fees, as well as the cost to repair or replace the broken valuables, totalling $10,000.
Problem: You’re a ceramic artist in your free time that creates pottery pieces for clients. One evening, your home workshop is broken into, and your expensive pottery wheel is stolen, along with several already-sold pieces that were drying.
Outcome: Your Commercial Property Insurance could cover both the cost to replace the pottery wheel and the stolen pottery pieces, totalling $7,500.
Frequently asked questions
Will sole proprietorship insurance cover if I get injured?
No – Sole Proprietorship Insurance only covers claims alleging third-party bodily injuries or property damages. If you or your employees get injured from a business-related incident, this will not be covered under this policy.
Does my business have to be registered to get liability insurance?
Yes – to qualify to get liability insurance, most businesses will need to be registered. However, some companies in specific industries may not need to have a license in advance. Speak with a broker to find out if your business is required to be registered.
Do I need insurance as a sole proprietorship business?
Yes – even the smallest, one-person businesses should obtain liability insurance. There are risks that all businesses face that can threaten the survival of their operations if legal matters are pursued. Therefore, insurance is essential as part of your risk management strategy.
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