I’m too small to get sued.
Nope. It’s easy to think your sole proprietorship could never face a lawsuit. But the truth is, you don’t need a storefront, employees on payroll, or a million-dollar income to be at risk of a legal nightmare. Like any business owner, you’re exposed to potential liabilities simply because you’re in business.
You started your side hustle or solo operation to gain financial freedom. That’s where small business insurance for sole proprietors comes in — to protect everything you’re building.
What Is a Sole Proprietor?
A sole proprietorship is the simplest business structure. It means you and the business are the same entity — you are your business! If you haven’t filed paperwork to form an LLC or corporation, you’re a sole proprietor by default once you start selling your services or products.
For example, a freelance photographer who starts offering mini sessions for a fee (without first creating a formal business structure) is a sole proprietor.
Other key things to note about sole proprietorship:
- You file taxes through your personal tax return (Schedule C)
- There’s no legal separation between your personal and business assets
- You may still need to register a DBA (“doing business as”) name
- You’re personally responsible for any debts or liabilities
- It can be a small business you run on the side
- It’s a common structure for hobbyist businesses
In short, starting a business as a sole proprietor is the easiest route, but it comes with greater risk, as all financial responsibilities of the business ultimately fall on you, the individual.
Did You Know?
In 2021, U.S. small businesses collectively paid a whopping $160 billion for general liability lawsuits. Imagine a part of that money coming from your bank account — not fun!
Why Small Business Insurance for Sole Proprietors Matters
You’ve got the vision, and you’re making your solopreneur dreams a reality. Now, imagine your entire business being pulled from under you because of an expensive claim. Sole proprietor business insurance is essential because it safeguards your enterprise from what-ifs that can derail all your hard work.
You may be growing solo, but getting the right coverage means you’re not alone in the world of liability. Here are six reasons why small business insurance is an unskippable step for your sole proprietorship.
1. Your Personal Assets Are on the Line
You are the business, and the business is you. In some ways, that’s wonderful — in other ways, like if you were to get sued over an accident related to your work, it could mean saying goodbye to your personal assets.
Since there’s legally no separation between you and your business, if something goes wrong and you’re sued, the money to pay for it could be sourced from your home, savings account, or other assets. Yes, a single mistake made against a litigious client can cost you your entire business and even the roof over your head.
Insurance for sole proprietors acts as a shield between your personal assets and expensive legal battles, so you can level up your business with peace of mind.
2. Clients or Contracts Often Require Insurance
Another main reason you need sole proprietor liability protection is that many clients, landlords, or organizers require proof of insurance before signing contracts or agreeing to work with you. Why? Because it lowers the risk of financial loss if something goes wrong.
Say you’re a mobile bartender gearing up for a busy wedding season. There’s a last-minute opening for a lucrative gig, but the venue needs a copy of your certificate of insurance (COI) stat before booking you. If you don’t have a policy, watch that opportunity — and the paycheck! — slip from your hands and into those of an already insured competitor.
Small business coverage helps you stay ready for moments like these.
3. Safeguard Against the Risk of Physical Injuries
As a sole proprietor, you simply cannot guarantee that your business won’t cause injury or property damage to a client. No matter how careful you are! Liability insurance for sole proprietorships protects you financially when accidents happen — it gives you peace of mind to do the work you love!
Imagine a self-employed cleaning professional tidying up a client’s home. They do everything by the book, but the client comes home early, trips over the cleaner’s equipment, and breaks their wrist. Or, a leak in a cleaning solution bottle damages an expensive heirloom rug. The sole proprietorship (i.e., the individual) could be held liable for those accidents.
Like we mentioned earlier, the funds for client restoration can be taken from this unlucky sole proprietor’s personal bank account! You never know when a mishap might occur. The proper coverage gives you a safety net for these just-in-case scenarios.
4. Get Covered for Professional Mistakes
How would your business fare if your professional services were on the line? Say you’re a business consultant and your advice leads a client to invest in a tech startup that ultimately collapses and causes your client devastating financial loss.
Or, you’re a photographer who’s discovered your memory card is corrupted, after a big day of shooting once-in-a-lifetime moments.
Even the most seasoned professionals are at risk of making a mistake or a client claiming they haven’t delivered. And one error can threaten your entire business, from your financials to your reputation. Sole proprietor liability insurance helps cover you from professional slipups so your business can continue operating.
5. Homeowners Insurance Doesn’t Cover Your Business
From garage workshops to client hosting, many sole proprietors run their businesses from home. It’s a convenient way to make space for your business operations within your means. But it’s important to note that homeowners or renters insurance doesn’t cover your business-related property, equipment, or liability.
You need dedicated sole proprietor business coverage to protect against claims arising from your at-home workspace.
If a fire damages your work laptop, client files, product inventory, or other business gear, your personal policy typically excludes these losses from coverage. Similarly, if a client slips and falls during a meeting at your home office, your homeowners insurance won’t pay out for the liability claim because that coverage is meant to cover your living, not your business.
6. Boost Your Business’ Credibility
The final major reason you need insurance for your sole proprietorship business is to enhance your credibility and boost client confidence. It shows you take your business seriously — even if it is a one-person show or just taking off!
Getting coverage signals to potential clients you’ve thought through the hypotheticals and have a backup plan if something unexpected happens.
Ask yourself this: You need to hire a third-party contractor to complete a project. Would you rather partner with the prepared professional who carries liability insurance or the one who skipped the step entirely? The former, right? Well, your clients view you the same way!
Your proof of insurance as a sole proprietor is like a stamp of approval, communicating to clientele you’re a stellar, low-risk option to work with.
Quick Recap
You need sole proprietor insurance because:
- You are your business and could be personally liable for claims related to your business
- Clients typically require insurance before choosing to work with you
- Your business could cause third-party injury or property damage
- You could make a real or perceived professional mistake
- Your homeowners insurance won’t cover your business at home
- It can boost your professional credibility for more business
Quiz: Do I Need Business Insurance for My Sole Proprietorship?
Take this quick quiz to see if your business could benefit from insurance coverage.
- Do you interact with clients in person or at their location?
- Do you sell physical products or provide services that could cause injury or damage?
- Do you sign contracts with clients, venues, or marketplaces?
- Could a mistake or oversight in your work cause a financial loss for a client?
- Do you work in a rented space, shared studio, or coworking office?
- Could a lawsuit against your business put your personal finances or property at risk?
If you answered yes to any of these questions, you need small business insurance!
Sole Proprietor Business Insurance: Coverage to Consider
Marketing, paperwork, client face-to-faces — you wear many hats! Likewise, small business insurance for sole proprietors comes in various forms to protect you from the different exposures you face.
These are the most critical coverages for startups and sole proprietors.
General Liability Insurance
Also known as “slip and fall” insurance, general liability insurance is designed to cover claims of third-party bodily injury, personal (non-physical) injury, and property damage. This coverage is essential for all sole proprietors as it helps pay for the most common accidents you face while running a business.
Example Claim: A dog walker is walking several dogs in town when a passerby trips over a leash and suffers head trauma. General liability insurance can pay for the passerby’s medical bills and defend the dog walker if a lawsuit is brought against them.
Professional Liability Insurance
Commonly referred to as errors and omissions (E&O) insurance, professional liability insurance protects your sole proprietorship if a client claims your services caused them financial harm or distress — such as giving accidentally poor advice, missing a deadline, or making a costly mistake.
This coverage is especially important for any professional who makes recommendations to a client, like consultants, coaches, or freelancers.
Example Claim: A personal trainer takes on a client looking to achieve their “dream body.” Despite the trainer’s careful explanations of realistic results to expect, the client sues the trainer, claiming their sessions did not help them achieve the weight loss they desired.
Inland Marine
Inland marine coverage covers your movable business property, such as tools or equipment, while in transit or stored in your home office or studio. This protects your items from theft, loss, or damage, so you don’t have to pay out of pocket to replace your business essentials. Remember: Homeowners or renters insurance doesn’t cover business-related property!
Example Claim: An artist stores dozens of completed pieces and supplies in her home art studio for an upcoming market, but a burst pipe floods the room, ruining her inventory and specialty mediums. While it can’t recreate her artwork (and all the time spent creating!), inland marine coverage kicks in to cover the damaged inventory and materials.
Liquor Liability Insurance
Imperative for sole proprietors who serve, sell, or distribute alcohol, liquor liability insurance covers claims of injury or property damage caused by someone who consumed alcohol you provided.
Most states have dram shop laws that hold bartenders, servers, or businesses responsible when an intoxicated customer causes injuries or damages. Liquor liability insurance can protect your business if you accidentally overserve a customer.
Example Claim: A mobile bartender serves an event attendee who drinks too much, drives home, and causes an accident. If the injured party sues the bartender for overserving, liquor liability insurance can cover defense costs and damages related to the incident.
Product Liability Insurance
If you sell or manufacture physical goods, product liability insurance protects you if a customer is injured or their property is damaged by one of your products. This coverage is critical for sole proprietors like artists, food vendors, or CBD businesses whose products have the potential to harm someone after the sale.
Example Claim: A baker makes brownies from scratch out of her home kitchen. One day, she accidentally mislabels her batch, not correctly noting the nut ingredients in the baked goods. A customer has a reaction after eating one of the brownies and is hospitalized. In this case, product liability insurance can cover the medical expenses, legal fees, and potential settlement.
Workers Compensation Insurance
Most states require you, as the business owner, to carry workers compensation insurance if you have employees. It’s designed to cover medical bills and lost wages if an employee is injured on the job. You can also include yourself in the coverage to ensure you’re protected if you’re ever injured while working.
Example Claim: A landscaping sole proprietor hires a part-time employee. While trimming a tree, the employee accidentally falls and breaks a leg. Workers compensation can cover the employee’s treatment and lost wages during recovery.
Cyber Liability Insurance
Did you know 88% of small business owners feel vulnerable to cyber attacks? With good reason.
Running a business today means storing client data or taking payments online. Cyber liability insurance protects you from the fallout of data breaches that compromise your client’s sensitive information, like credit card details or home addresses. It helps with notification costs and restoration.
Example Claim: A life coach’s work laptop is hacked, exposing personal and payment information for multiple clients. They must notify clients and cover credit monitoring. Cyber liability insurance helps pay to make things right for their clients.
How to Get Business Insurance for Sole Proprietors
Getting small business insurance as a sole proprietor is simpler than you think! Insurance Canopy offers ready-to-buy policies for many common sole proprietor business types you can purchase online in just a few minutes. If you need a custom solution, simply fill out a short application for a quote in 24 hours — no hassle, no hoops.
Coverage is easy, affordable, and built for your needs. For example, fitness sole proprietors can get insured starting from $15 a month.
When there’s no legal separation between you and your business, going without coverage puts everything at risk. Get peace of mind to focus on growing your small business, with the confidence only liability insurance can provide.
FAQs About Business Insurance for Sole Proprietors
Do Sole Proprietors Really Need Business Insurance?
Yes! Sole proprietors are personally liable for business-related claims, which means your personal assets could be at risk if someone sues you. Sole proprietor insurance is designed to protect you from costly accidents, lawsuits, or property damage claims that can threaten your business — plus your livelihood outside of your business.
Is Business Insurance Legally Required for Sole Proprietors?
How Much Does Small Business Insurance Cost for Sole Proprietors?
Costs vary based on your profession, location, and coverage needs, but with Insurance Canopy, many pay between $10–$99 per month for a basic general liability policy. Adding more sole proprietor business insurance coverage types can increase the cost.
JoAnne Hammer | Program Manager
JoAnne Hammer is the Program Manager for Insurance Canopy. She has held the prestigious Certified Insurance Counselor (CIC) designation since July 2004.
JoAnne understands that starting and operating a business takes a tremendous amount of time, dedication, and financial resources. She believes that insurance is the single best way to protect your investment, business, and personal assets.
JoAnne Hammer is the Program Manager for Insurance Canopy. She has held the prestigious Certified Insurance Counselor (CIC) designation since July 2004.
JoAnne understands that starting and operating a business takes a tremendous amount of time, dedication, and financial resources. She believes that insurance is the single best way to protect your investment, business, and personal assets.
