Do sole proprietors need business insurance?
Business insurance may be required for sole proprietors if:
- A client contract requires proof of coverage before they’ll sign a contract with you
- A landlord requires you to carry insurance to sign a commercial lease
- Your state requires workers’ compensation insurance once you hire employees
- A licensing board requires liability coverage for your profession
But even if it’s not a requirement for your job, it can be a wise precaution to help protect your business.
A sole proprietor is the most common and simplest business structure for a business of one. But that also means sole proprietors are responsible for all of the business’s debts, taxes, legal liability and business insurance.
Unlike an LLC or corporation, a sole proprietorship does not have any legal separation between the owner and their business. If there’s an accident or mistake, they’re personally responsible.
If someone gets hurt or property is damaged as a result of your work, insurance could help cover medical expenses, repairs and some legal costs.
What could business insurance cover for sole proprietors?
Sole proprietor insurance is not a single, standalone policy. It typically refers to a combination of different types of business insurance coverage that can help protect your business.
Depending on your industry, you may want coverage for:
- Customer injuries
- Property damage
- Professional mistakes or negligence claims
- Damage to your business equipment
- Work-related auto accidents
The exact mix of policies you need depends on your industry, the type of work you perform and your specific risk exposure.
These are some of the most common business insurance policy types for sole proprietors.
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What could it cover?
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Who needs it most?
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General Liability insurance
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Customer injuries, property damage, legal defense
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Most sole proprietors
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Workers’ Comp insurance
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Employee injuries and illness
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Sole proprietors with employees
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Professional Liability/Errors and Omissions (E&O) insurance
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Professional errors, negligence, or mistakes
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Consultants, service providers
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Commercial Property insurance
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Equipment, inventory, physical workspace
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Retailers, food service, contractors, owners with physical workspaces
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Cyber Liability insurance
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Data breaches, cyberattacks, client notification costs
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Sole proprietors who store customer data or accept online payments
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Commercial Auto insurance
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Work-related vehicle accidents
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Contractors, delivery businesses
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General Liability insurance for sole proprietors
General liability insurance is one of the most common types of business insurance for sole proprietors. It can help protect your business if a third party claims you caused bodily injury, property damage or certain advertising-related harm.
For example, imagine a customer slips on a wet floor and files a lawsuit. As a sole proprietor, you could be responsible for legal fees and settlements.**
General liability insurance can help cover a variety of things, including:
Bodily injury coverage
Bodily injury coverage is sometimes called slip and fall insurance. It could help cover injuries to non-employees at your business.
For example, if someone trips over your photography equipment and requires medical attention, your insurance may help pay for expenses.
Property damage costs
A general liability policy can also help cover property damage to items that don’t belong to you. Accidents happen. If you or your employees accidentally ruin a client’s expensive carpet or cause damage that needs repair, your coverage may help cover those expenses up to your policy limit.
Advertising injury
General liability coverage can also help cover certain claims related to advertising injury. This may include allegations of copyright infringement in your advertisements, defamation, libel or slander tied to your marketing materials or online content.
Workers’ Compensation insurance for sole proprietors
Workers’ compensation insurance can help cover medical expenses and lost wages if an employee suffers a work-related injury or illness. It’s designed to help support recovery and also help protect the business from some lawsuits related to workplace injuries.
If you hire employees, workers’ compensation coverage is often required by state law. Though requirements vary by state, and some states may have specific rules for sole proprietors.
Workers’ compensation policies can help cover things such as:
Medical expenses
This can help pay for doctor visits, hospital stays, prescriptions and rehabilitation related to a workplace injury or illness.
Lost wages
If an employee can’t work while recovering, workers’ compensation may help replace a portion of their lost income.
Job retraining benefits
If an employee is unable to return to their previous role after an injury, workers’ compensation may help cover approved job retraining or vocational rehabilitation programs to prepare them for new work.
Even if you operate alone, you may have the option in some states to get coverage for yourself. This can provide benefits if you’re injured while working.
Sole proprietor Professional Liability insurance (E&O insurance)
Professional liability insurance — also called errors and omissions (E&O) insurance — can help protect sole proprietors who sell their services or advice. It can help cover claims that your work caused a client financial loss due to a professional mistake, oversight or missed deadline.
For example, if a client alleges that your services were negligent or incomplete, you could face legal fees even if you did nothing wrong. Professional liability insurance could help cover defense costs and certain settlements up to your policy limits.
This coverage is especially relevant for consultants, designers, accountants, real estate professionals and other service-based sole proprietors.
Professional liability coverage typically includes coverage for:
Claims of negligence or mistakes
If a client claims your work contained an error or failed to meet expectations, this coverage can help with legal defense costs and certain damages or settlements.
Missed deadlines or incomplete work
If a project delay or oversight results in financial loss for a client, professional liability insurance can help cover related claims.
Legal defense costs
Even if a claim is unfounded, defending yourself can be expensive. Professional liability coverage can help pay attorney fees and court costs.
Other types of business insurance sole proprietors might need
Business liability insurance for sole proprietors is where many business owners start. But the best business insurance coverage usually includes a few different types of coverage.
Here’s a guide to some of the most common types of sole proprietorship insurance:
Commercial Property insurance
Commercial property insurance may help protect your business assets, such as equipment, inventory and the building you work in. If something happens to your business property — like a fire or theft — property insurance can help with replacement costs or repairs.
It can also help with the loss of business income while you get back up and running.
Cyber Liability insurance
Cyber liability insurance could help protect your business if sensitive information — such as client data, payment details or personal records — is exposed in a data breach or cyberattack. It may help cover costs related to data recovery, client notification, legal fees and certain regulatory expenses.
This coverage can be especially important for sole proprietors who store customer information electronically or accept online payments.
Commercial Auto insurance
Commercial auto insurance provides coverage if you are involved in an accident in a business-owned vehicle. It can also provide coverage for accidents in your personal vehicle while it’s being used for work-related purposes.
How much does sole proprietor insurance cost?
The cost of business insurance for a sole proprietor can vary depending on the types of risks your business faces, including:
- Where your business is located
- What kind of work you do
- How long you’ve been in business
- Your number of employees
- Your claims history
- How high you set your coverage limits
- How many work vehicles you have
Start a free, no obligation business insurance quote with ERGO NEXT. In about 10 minutes you’ll see the exact price you’ll pay, 100% online.
How sole proprietors can choose the best business insurance company
Here’s what you should consider when comparing sole proprietor insurance policies:
1. Determine what insurance coverage you need
It’s important to consider all the potential risks your business faces and where there is the greatest potential for an accident, injury or lawsuit before you get your insurance quote.
2. Compare coverage prices
Make sure that the price you’re paying for your insurance and any deductible fits within your budget. Most insurance companies will give you free quotes. At ERGO NEXT, you also have the option to pay monthly or annually.
3. Consider coverage requirements
Some states require sole proprietors to have workers’ comp insurance (even if you don’t have any employees). Your client contracts or lease agreement may require general liability insurance. The industry and the state in which you work will have its own mandates for what’s required.
4. Understand deductibles and limits
A deductible is the amount you’ll pay in the event of an incident before your insurance begins to help cover the remaining costs.
Choosing the right balance between deductibles and premiums can help you manage costs while maintaining protection.
What can happen if a sole proprietor doesn’t have insurance?
Without business insurance, a sole proprietor may be personally responsible for:
- Legal defense costs
- Medical bills from customer injuries
- Property damage claims
- Settlement payments
Because there’s no legal separation between you and your business, a lawsuit could potentially impact your personal savings, your home ownership or other assets.
For many sole proprietors, insurance isn’t just about meeting requirements — it’s about protecting what they’ve built.
