Is Business Insurance Necessary For A Sole Proprietor?
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A sole proprietorship is one of the most simple business structures as it involves one person only. The owner of the business is also the only person managing the operations of the business, meaning that there is no demarcation between the owner and the business itself.
At the same time, sole proprietors run the risk of dealing with a couple of problems that other small businesses face, such as lawsuits and property damages due to:
- Litigations
- Destruction of property
- Auto collisions involving a business-owned vehicle
Because of these factors, it is important to note that, unlike other forms of business, sole proprietors have business liabilities that can easily be turned into personal liabilities. To adequately protect your sole proprietorship, you want to be sure that you have the right sole proprietorship insurance.
Advantages And Disadvantages Of A Sole Proprietorship
If you are contemplating starting a sole proprietorship, some of its advantages include the following:
- Simple to create
- Complete authority over business decisions
- Relatively low cost in preparing taxes
- All revenue from the business is kept
There are also several disadvantages to sole proprietorships, like:
- Hard to obtain loans from banks
- Personal assets are exposed and can be claimed in lawsuits
- Full accountability for all the actions taken
If you intend to take advantage of sole proprietorship businesses, it is recommended that you seek professional guidance to ensure that you acquire the right insurance policies. Get a quote today.
Some Important Sole Proprietorship Liability Insurance Types
Sole proprietorship liability insurance may cover claims arising from, but not limited to:
- Injury claims from customers affected within your premises
- Lawsuits against your business
- Damage caused by unauthorized access to sensitive data
- Reduction of revenue arising from damages against your business premises
These expenses will come from your pocket without this coverage.
Sole Proprietor Workers’ Comp
Workers’ compensation insurance is a benefit plan that gives employees necessary help if they encounter work-related injuries or illnesses. Such benefits may include:
- Medical expenses
- Disability claims
- Funeral costs
- Salary benefits
If you are unclear about the self-employed and independent contractors’ small business insurance requirements regarding workers’ compensation, the solution is easy. Generally, if your company employs people, it means that, at a minimum, workers’ compensation insurance is likely to be a requirement in your state. If you have no employees, it is likely that, in most cases, workers’ comp coverage will not be necessary.
That said, if you act as a subcontractor, then you might need workers’ comp coverage. Whenever you engage independent contractors in your business, you will need to look into the requirements of your state. In some regions, workers’ compensation coverage may be necessary.
General Liability for Sole Proprietorships
The general liability insurance of a sole proprietorship can cover:
- Damage to property
- Physical injury
- Legal claims
If a patron sustains an injury within your premises, this insurance coverage will assist in paying for their medical treatments. If not, you will bear the whole burden. Liability claims that come from business conducted away from your premises can also be insured under what is known as completed operations coverage.
Errors and Omissions for Sole Proprietors
Also known as negligence insurance, errors and omissions insurance for a sole proprietorship is essential in mitigating the impacts of oversights that you may commit while offering professional services to your customers. It can be used to offset claims that arise from:
- Carelessness
- False claim
- Irresponsible counsel
Consider that you make a serious mistake with respect to the advice you give your clients and they sue you. This type of insurance would enable you to have your legal expenses paid. On top of errors and omissions insurance, accounting firms can also take advantage of some other protective cover like business income coverage, which will buy out the winnings lost during the down time of the firm’s office due to loss sustained.
Extra Business Insurance For Sole Proprietorships
For your sole proprietorship, here are some desirable coverages that you may want to add on top of additional Business Insurance coverage:
- Commercial auto insurance coverage in case of damage when an employee is driving a company-owned vehicle and gets into an accident.
- Business Owner’s Policy (BOP) that combines property insurance and business liability insurance into one whole policy.
- Commercial property insurance for the business’s physical assets to protect it from fire, theft, or other covered losses.
- Data breach insurance that protects your sole proprietorship from hacking by paying to notify customers or patients impacted by the data breach.
- Commercial umbrella insurance to supplement your liability coverage above and beyond your policy limits.
How Much Is Liability Insurance For A Sole Proprietor?
Sole proprietorships come in many forms. Because of this, sole proprietorships do not have a uniform cost estimate since their pricing depends on your:
- Risk exposure industries that have higher risks tend to pay more for insurance.
- Geography higher crime areas typically have higher insurance rates.
- Policy limits policies that have higher limits tend to cost more.
- Past claims more past claims usually increase your rates. To see your previous claims, you may request an insurance loss run report.
Professional Liability Insurance for Sole Proprietorship
Unlike other business structures, such as an LLC, sole proprietor businesses mean that the owner is solely liable for all business debts. Your business and personal assets are not separate, which means you need to ensure proper business insurance coverage to guard yourself and your business.
One area of coverage that might be relevant to you is professional liability insurance for sole proprietorships. Errors and Omissions, or professional liability insurance, safeguards the business in the event that someone compliments and sues you for malpractice and seeks damages due to your malpractice. It is a fact that everything is governed by law and people can sue you even when no error was committed on your part.
Benefits of Professional Liability Insurance to Sole Proprietorships?
Professional liability insurance for sole proprietors can address the following:
- Neglect
- Allergic to assistance
- Wrongful representation
- Failure to take reasonable care to protect PII
The insurance can pay for the following costs if your firm is sued for negligence:
- Attorney fees
- Other costs associated with defence
- Loss of earnings due to attending the trial or deposition
This type of insurance shall not be taken to imply covering all the business risks. In order to have full coverage, other forms of small business insurance are going to be necessary.
An insurance policy covering professional liabilities for small businesses will not assist you with respect to the following claims:
- Bodily injury or property damage, for which the general liability insurance policy has to be taken out.
- Injury claims from the employee can be tackled by a specialized workers’ compensation insurance policy.
- Interruption of business activity becuase of property worth damage. Any claim of this sort can be compensated with business income insurance coverage.
Responsibility Does A Sole Proprietor Have In Professional Practice?
If you are a sole proprietor, then you are a person in charge who can be personally sued, together with your business. This means you are accountable for any claims, liabilities or legal obligations. There is no distinction, with sole proprietorship, between personal and business property. This highlights the need for professional liability insurance.
Let’s assume there isn’t any coverage at all, and your client decides to take legal action against you over an error you made while rendering professional services. You will bear the burden of defending yourself and any adverse decision, which, in all likelihood, entails you suffering a hefty financial blow. If this cost of legal action against your professional account is unbearable, your assets would be jeopardized as well.
Professional Liability Insurance Range for Sole Proprietor
The vast range means that every policyholder will have different rates according to their needs and business requirements. This type of insurance usually costs between $150 and $2500 or even higher. Various factors determine what the rate is set at. These can be for example:
- Business experience
- Covered claims
- Geographical region
Does A Sole Proprietor Require Professional Liability Insurance?
Professional liability insurance is essential for sole proprietors who offer services or professional advice. These businesses and others like them may also wish to take out this type of policy:
- Accountants
- Advertising agencies
- Bookkeepers
- Consultants
- Graphic designers
- Home inspectors
- Real estate professionals
- Technology businesses
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