How to Buy Sole Proprietor Business Insurance

Operating a business as a sole proprietor has a number of benefits. However, it’s important to have the right types of insurance to protect yourself against potential risks. Before you purchase sole proprietor business insurance, there are a few factors to consider, like the characteristics of your business and your budget. In this article, we’ll explain how to get business insurance for sole proprietors and how to pick the best policy for your business. 

Assess Your Needs 

Every sole proprietor business has unique insurance needs. For example, if you’re a social media manager, you probably need different types of insurance than a landscaper or an electrician would need. As you shop for business insurance for a sole proprietor, here are some of the factors you should keep in mind:


  • The risk level of the business: If you work in a high-risk industry like construction or run a company where you visit customers in person, you might need more insurance coverage than someone who freelances from a home office. 
  • Required insurance policies: Depending on the nature of your business and your location, you might be required to have certain types of insurance. For example, if you’re an artist and you want to rent studio space, the landlord might require you to have commercial property insurance.1
  • Optional insurance policies: In addition to required insurance policies, there are also some optional insurance policies that can benefit your business. For example, professional liability insurance can protect you from third-party claims of unsatisfactory work and bad business advice.
  • Coverage limits: After choosing the types of insurance you need, make sure you have sufficient coverage limits. Sole proprietor businesses in high-risk industries will likely need higher coverage limits for adequate protection than a business in a low-risk industry. In general, it’s better to overestimate the amount of insurance coverage you need. 

Research Sole Proprietor Business Insurance Companies

There are many commercial insurance companies that sell small business insurance for sole proprietors. However, every insurance provider has advantages and disadvantages, so it’s a good idea to research multiple companies and compare them. Here are some tips for researching sole proprietor business insurance companies:

  • Check third-party ratings: Look at third-party ratings for each insurer you’re considering. AM Best rates companies based on financial strength, J.D. Power rates insurers based on overall customer data, and the National Association of Insurance Commissioners (NAIC) tracks insurance company complaint rates relative to an insurer’s share of premiums in the in market. 
  • Read customer reviews: Before you choose a commercial insurance company, read customer reviews. Sites like the Better Business Bureau (BBB) publish reviews and complaints from real customers, so you can learn what people have said about the insurer.
  • Get quotes: Business insurance premiums for sole proprietors depend on many different factors, including the insurance company. As you compare insurers, get several quotes to see which one can offer you the most affordable rate.

Compare Sole Proprietor Business Insurance Quotes

When shopping for sole proprietor business insurance, the price of coverage is an important factor to consider. You can compare quotes to find the cheapest coverage for your situation. Here are the main factors to keep in mind. 

Cost

  • Premium: Your premium is the regular payments you make to keep your insurance policy in force. Most insurers let you pay the annual premium in full or in monthly installments. Some companies will give you a small discount if you pay a year of premiums upfront.
  • Deductible: Most business insurance policies have a deductible, which you pay out-of-pocket when you file a claim. In general, choosing a high deductible will result in a lower monthly payment. However, it’s important to have enough cash on hand to pay your deductible.

Coverage

  • Types of coverage: The cost of business insurance can vary based on policy type. For example, a business owner’s policy (BOP) typically has a higher premium than a workers’ compensation policy because it usually includes commercial property and general liability insurance. Other types of insurance, like commercial auto insurance, can raise the cost of your insurance significantly. 
  • Coverage limits: If your business needs a high amount of insurance coverage, you can expect to pay a higher premium. However, try to avoid sacrificing coverage you need just to get a lower rate. If you don’t have enough insurance coverage, you could end up paying out-of-pocket in the event of a claim, which can cost you more.

Review Policy Terms and Exclusions

Every sole proprietor business insurance policy has some exclusions. The exact terms and exclusions will depend on the type of business insurance policy, as well as your insurance company. Some policies have more limitations than others, so reviewing the terms and exclusions before you purchase coverage is important.

Some insurance companies publish the terms and exclusions on their website, which you can review on your own. Once you start the process of buying a policy, you will also be able to review the full insurance contract with a more detailed breakdown of specific terms and exclusions. 

If you don’t understand the terms, or if you have any questions about what is and isn’t covered, consider talking to an insurance agent. A licensed agent can make sure you’re choosing the right types of insurance and amounts of coverage for your business.

Final Word

The best sole proprietor insurance for your business depends on a variety of factors like the type of coverage and the amount of coverage you need. You should also compare multiple providers based on third-party ratings and customer reviews as well as premium costs. Before you purchase a policy, get personalized quotes from the insurers you’re considering, and review the terms and exclusions to make sure your business is covered.

Top Sole Proprietor Business Insurance Companies to Consider

  • The Hartford
  • United States Liability Insurance Group (USLI)
  • Liberty Mutual Insurance Company
  • ACUITY
  • Hiscox
  • Travelers
  • CNA Insurance Companies
  • Contractors Bonding & Insurance Company (RLI)

Can a Sole Proprietor Get Business Insurance?

Sole proprietors can get business insurance. Some sole proprietors are required to have business insurance, depending on their location and business characteristics. For example, if you have any employees on payroll, you will probably need workers’ compensation coverage.2

Do Sole Proprietors Need Business Insurance?

Sometimes. You might need insurance to sign a commercial lease, insure a business-owned vehicle, or sign a contract with a customer. However, business insurance is not a legal requirement for all sole proprietors; only certain states require certain types of insurance for sole proprietors.3

What Type of Insurance Should a Sole Proprietor Have?

Every sole proprietor has different insurance needs. However, most sole proprietors can benefit from a general liability or professional liability insurance policy, depending on the nature of the business. Other types of insurance, like workers’ compensation or commercial property insurance, might be required in specific situations.

How Much Is Liability Insurance for a Sole Proprietor?

The cost of liability insurance for a sole proprietor depends on factors like your location, industry, number of employees, and past claim history.4 According to our research, general liability insurance premiums for sole proprietors range from $405 per year to $2,075 per year.

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