When you're deciding what type of business you want to be, one of the options that could arise is a sole proprietorship. What that means for you and your business can be hard to understand, and sole proprietorship insurance is also important to consider. In order to break down this issue, we'll examine a few different issues.
What is a Sole Proprietorship?
Over 70% of businesses in the US today are sole proprietorship businesses. What that means in legal terms is that it's different than a larger corporation. In a sole proprietorship, the owner of the business is directly linked to the business in legal terms. In a larger corporation, the business is its own entity separate from the owners.
For example, Facebook is an incorporated business and isn’t directly and inextricably tied to Mark Zuckerberg, its owner and founder. On the other hand, your plumbing company that you own and run yourself may fall under the category of a sole proprietorship. Since a sole proprietorship is untied to larger corporate strings, it's often easier to run for the average businessperson, making sole proprietorships more common especially in the small business world.
Why Register as a Sole Proprietorship?
There are several benefits to running this type of business, including:
- Sole proprietorships are owned and run by a single person. As such, you can make all the decisions solely on your own without the inconvenience and time-consuming process of shareholder meetings, votes, etc.
- With a sole proprietorship, it's easier to deal with administrative issues, and you'll likely have fewer contracts and legal procedures, tax requirements, filing, etc.
- Sole proprietorship losses can be claimed as personal income losses, which can help when it comes time to file your tax returns.
It's important to note that being a sole proprietor is not the same thing as being an independent contractor. A sole proprietorship is a free-standing business; an independent contractor works for another company.
Choosing Sole Proprietorship Insurance
While there are many advantages to running your own business, there are also disadvantages to consider. For example, if an employee is injured on site, you can be held responsible. For this reason, it’s very important to select the right sole proprietorship business insurance.
Here’s what you should consider when comparing sole proprietor insurance policies:
Compare Coverage Prices
Comparison shop for the most competitive pricing plans that fit your needs. Your business has a budget which you probably know very well, and you want to make sure that the price you're paying for your insurance premium and any deductible fit within that budget.
Consider Legal Requirements
Some states require sole proprietorships to have worker’s comp insurance, while others will enforce liability insurance for independent contractors. Know your legal requirements and make sure your plan has them covered.
A deductible is the amount you’ll pay in the event of an incident before your insurance kicks in to pay the remainder. Deductibles and your premium are sometimes inversely proportional; when deductibles go up, premiums go down, and vice versa. Which is right for you? This will depend on how often incidents occur in your business. Choosing the right balance between deductibles and premiums will save you considerably.
Consider What Coverage You Need
While general liability insurance is the most important insurance you need for your sole proprietorship, there may be other types of insurance that you will need as well. Its worth looking into whether you need auto coverage, if you have employees and need worker's comp, if you have property that requires coverage, and more.
What You Need to Know: Sole Proprietor Liability Insurance
Sole proprietorship liability insurance is probably one of the most important coverage plans you can get for your small business, although many business owners aren’t even aware of the need. If you own a business, here are some things you really need to know.
General liability insurance for sole proprietors is made up of several components, but the three most important ones are:
Sometimes referred to as "slip and fall insurance," this is the section of your policy that covers accidents that occur on your watch to a third party. This might refer to a direct injury to a client because of work you did or to an accident that happened on your showroom floor. Bodily injury insurance covers any claim that anyone else can register against your company for negligence or other behaviors that led to an injury.
Alternatively, personal injury claims will affect a person or company’s reputation. This section of your policy will cover you against any claims relating to misinformation, advertising discrepancies, or defamation.
As the name implies, the property damage part of your coverage insures you in the event that property damage was done to a worksite. This could refer to scratching the walls of a house you are renovating, breaking a piece of furniture while showing a client a new weight lifting move, or breaking an antique vase while cleaning someone’s house.
With sole proprietorship insurance, a company is covered in the event of an accident or injury, while without it, your business may be liable to major expenses. Especially for a sole proprietorship, these costs can be well beyond your budget, so a good general liability insurance policy will be just what you need to help you grow and focus on your business with the confidence of great coverage.