Which types of insurance policies do sole proprietorships need?

If you run your business on your own as a sole proprietor, purchasing insurance for your company could protect you against financial loss due to lawsuits, damaged property, and lost revenue.

Independent ventures take on more hazard than large enterprises. Many people who run their businesses on their own erroneously believe that because of their smaller footprint, they have a lower risk of being sued. Yet, they almost never have the financial backing of larger corporations, which makes it difficult for them to survive a drawn-out court struggle.

More than half of all commercial liability insurance spending in the United States originates from companies that have annual sales of less than $10 million, according to a survey conducted by the Institute for Legal Reform and The Brattle Group.

Businesses with annual sales of less than one million dollars are responsible for 39% of all expenditures associated with commercial tort liability (a claim that damages have been incurred). According to the findings of the study, the burden is around ten times bigger for companies with the lowest incomes than it is for companies with the highest incomes (companies that make more than fifty million dollars yearly).

Although having a solid business plan and securing the necessary capital to operate a firm are both crucial, having the appropriate forms of insurance may be even more critical to the success of a business.

Begin with the fundamentals: Insurance against general liability

Even though having a sound business strategy and collecting the necessary funds to manage a firm are both essential, possessing the appropriate forms of insurance may be even more important to the success of a corporation.

General liability insurance provides the following in addition to the conventional “slip and fall” protection against physical damage to a third party in the form of medical expenses and lost wages:

• Property damage caused by a third party (to someone else’s property)
• Product liability (in the event that you are sued for a product flaw)
• Advertising harm (if someone sues you over something you publish)

A company owner’s policy combines two policies into one.

A business owner’s policy, often known as BOP insurance, is a package deal that includes several different types of insurance to meet the requirements of a company.

BOP insurance typically includes coverage for a variety of incidental charges and fees, including those associated with legal representation.

• Arbitration claims brought by clients
• Defamation lawsuits
• Fixing or replacing broken or stolen business equipment
• Replacement of lost profits in the event of a business’ inability to operate due to theft or damage to its assets.

Are you starting to grow? Take into account E&O insurance.

Professional liability insurance, which is often referred to as errors and omissions insurance, is typically utilized by those who are employed in professions such as accounting, information technology, consulting, and real estate. If you’re sued for professional negligence, having E&O insurance can assist pay the costs of defending yourself in court or settling the case.

• Deadlines were missed.
• Work that is incomplete
• Breach of data

An intellectual property infringement rider is an endorsement that can be placed on a policy covering mistakes and omissions with certain insurance providers. Many consultants and other professionals include intellectual property infringement coverage as a standard component of their general professional liability insurance in the event that they are ever accused of infringing on the intellectual property of a third party.

When you begin employing, make sure you have workers’ compensation insurance.

The acquisition of workers’ compensation insurance is typically required prior to the hiring of any staff members. In the event that an employee has an injury while on the job, the worker’s compensation insurance policy will foot the bill for any necessary medical treatment. It could help reduce costs for a number of items, including the following:

• Medical expenses
• Continued care
• Unpaid wages

Every state has its own set of restrictions, and some of them don’t even require workers’ compensation insurance unless a certain criterion is satisfied. In most places, having health insurance coverage is a legal requirement from the moment you recruit your first employee.

Before you make any hires, check that you are well-versed in the criteria that are imposed by your state. Even if they don’t have any employees, sole owners in high-risk industries like construction may want to investigate getting workers’ compensation insurance for their businesses.

Coverage for commercial vehicles and rented non-owned vehicles

Businesses that fall under the jurisdiction of the majority of states are required to maintain commercial auto insurance on their fleet cars. This requirement applies to businesses both large and small. Because your regular auto insurance policy will not apply if you use a personal or leased vehicle for professional purposes, you should investigate purchasing hired and non-owned auto insurance (HNOA). This type of insurance protects drivers in the event that their vehicle is damaged while being driven by someone else.

Commercial auto insurance provides protection for the automobiles, trucks, and other types of vehicles owned by your company. It will pay for the other person’s medical bills and repair costs if you are responsible for the damage done to their vehicle, and it will replace your vehicle if it is stolen, vandalized, or damaged in a natural disaster. If you are responsible for the damage done to the other person’s vehicle, it is your responsibility to pay for those costs.

In the event of an accident involving a vehicle that is not the policyholder’s own or that was rented specifically for business purposes, the policyholder will be protected against monetary damage. It is likely that your personal auto insurance policy will cover you when travelling to and from work, but it will not do so if you are driving for business activities such as picking up supplies or making deliveries. It’s possible that your company’s HNOA policy will pay for the liability costs associated with renting cars.

It is important to keep in mind that the HNOA insurance will not compensate you in any way for anything that occurs while you are commuting, performing errands for yourself while you are on the clock, or if your vehicle is damaged.

You can get HNOA insurance on its own, or as an add-on to your current liability coverage.

Insurance for business disruption

In the event that your company is forced to temporarily close its doors due to a disastrous incident such as a fire or severe weather, having business interruption insurance can assist make up for the revenue that was lost. The funds could be put toward items like the monthly rent or the fees associated with moving, in addition to the normal bills and the costs of living.

You have the option to add riders to your insurance policy in order to receive financial assistance in paying for unforeseen equipment leases, employee overtime, and temporary staffing requirements.

Consider purchasing a contingency business interruption insurance policy as well. It acts as a safety net in case an interruption to a crucial supplier, partner, or client causes financial hardship for your business.

This rider should be included for the following reasons:

• Certain materials are obtained from a single source.
• The majority of your income comes from a few consumers.
• A neighboring business, such as a restaurant adjacent to a theater, is vital for attracting consumers.

Is my personal umbrella coverage sufficient to protect my single proprietorship?

Some people get personal umbrella insurance in addition to their standard home and auto policies in order to protect their assets in the event of a catastrophic incident that exceeds the limits of their standard policies.

If you run a business out of your house, that doesn’t mean your homeowner’s policy will pay for any damage claims made by customers or suppliers.

Commercial umbrella insurance is the business equivalent of personal umbrella insurance. Umbrella insurance protects your business from claims that exceed the coverage provided by your primary policies, such as general liability, commercial vehicle, or employer’s liability.

Commercial umbrella insurance is often purchased by the owner of a small business to fulfill a contractual obligation that calls for higher coverage than is supplied by the company’s primary policies.

What does a business umbrella liability coverage cover?

• Slip-and-fall accidents
• Mishaps affecting your company’s cars
• Employee injury claims

Commercial umbrella insurance typically does not provide coverage for malpractice, professional liability, or damage to firm property.

Why having insurance helps you get customers

If you’re doing work for friends and family first, they probably won’t ask to see proof of insurance. As you grow and take on bigger clients, you may find that certain businesses won’t work with you unless you have a certain level of insurance.

Some landlords require special insurance from their tenants regardless of whether they are employees or independent contractors. Informing customers that your business is insured is likely to be seen as a sign of professionalism and financial stability, regardless of the sector in which you operate.

With Insureon, you can compare insurance quotations.

Fill out Insureon’s quick online application and get several quotes from top U.S. insurers competing for your small business. Choose a policy that suits your needs, and you could be covered in as little as 24 hours.