Sole proprietor business insurance protects against lawsuits, lost wages, and damaged property. As a sole proprietor, you may have to wear many hats to get the job done. You need to look after every sector of your business and enjoy every perk of working independently.
Unfortunately, home insurance doesn’t cover business-related claims. In this situation, sole proprietor business insurance will be a great partner.
Table of Contents
- What Is A Sole Proprietorship?
- What Is Sole Proprietor Business Insurance?
- Sole Proprietor Business Insurance: What Does It Cover?
- Sole Proprietor Business Insurance: How Much Does It Cost?
- Sole Proprietor Vs LLC: What Are The Differences?
- Does A Sole Proprietor Need An EIN?
- How Much Is Small Business Insurance?
What Is A Sole Proprietorship?
When one person owns a business, it is called a sole proprietorship. If you are the sole owner of a business, you are responsible for all the business taxes, debts, and legal liabilities. Moreover, you have to take responsibility if any accidents and losses happen.
Still, the right business insurance can be a trusted partner of yours, and you won’t need to pay the entire amount.
Generally, a sole proprietorship is very common, and its structure is straightforward. But according to legal terms, it denotes a business owner who is not a part of a limited liability company (LLC) or a corporation, and there is no dissimilarity between the owner and the business.
What Is Sole Proprietor Business Insurance?
Sole proprietorship insurance is a policy package that will protect you from the risks associated with operating an unincorporated business. For example, it will help cover negligence claims, misrepresentation, or property damage.
However, this sole proprietorship insurance is mainly designed to give liability coverage for you.
Sole Proprietor Business Insurance: What Does It Cover?
Different types of risk come from other types of business. For example, an independent construction constructor won’t want the same coverage as a plumber or a freelance writer.
So, finding the perfect sole proprietor of business insurance is essential for your business. I believe a comprehensive policy will cover the risks you are most likely to face.
First, however, I’m going to provide you with the following sole proprietor business insurance coverages, which can apply to most business owners:
Liability Insurance (Professional)
Professional liability insurance is also called errors and omissions insurance. This insurance gives protection against claims arising from misconduct, negligence, and failure to deliver a service as promised.
Professional liability insurance offers advice and service for a fee. In addition, suppose you are a freelancer and a financial loss has occurred due to your negligence; this insurance will provide legal expense coverage.
Cyber Liability Insurance
Nowadays, Cyber Security is essential for all types of businesses. In fact, since the onset of COVID 19, cybercrime has increased by 400% (published by the FBI).
So, Cyber Liability insurance ensures coverage for costs connected with electronic occurrences, especially your technology system and customer data.
For example- if your customer data and financial details are compromised by a Cyberattack (hacking), Cyber Liability Insurance will bear the notification cost, risk management fees, and notification cost.
Commercial General Liability Insurance (Slip-And-Fall Insurance)
Commercial General Liability Insurance protects against bodily injuries or third-party property damages. Home insurance won’t cover damages that are caused due to business activity.
For instance- you are an independent gardener working in a client’s house and accidentally damage the pipe. Commercial General Liability Insurance may provide coverage to fix or replace broken water pipes in this circumstance.
Product Liability Insurance
If you manufacture, sell or distribute a product that has manufacturing defects and causes bodily injuries or property damages, Product Liability Insurance will protect you from these damages.
Suppose you have an art store specializing in ECO-friendly wall paint. One of your clients complained that your paint produces harmful fumes after painting and they can’t stay in their house plus threatening you to sue. Product Liability Insurance will cover the monetary judgment and legal fees in this situation.
Besides the insurance mentioned earlier, sole proprietor business insurance includes commercial property insurance and Equipment Breakdown Insurance, which is very helpful for your business.
Sole Proprietor Business Insurance: How Much Does It Cost?
Generally, a sole proprietorship insurance’s premium starts at $450 annually for general liability insurance with a $2M limit. There are many factors that most insurance companies will consider, like- Annual and Projected Revenue, Industry and Profession, Products and services offered, training and years of experience, and Claims history.
Sole Proprietor Vs LLC: What Are The Differences?
A limited liability company ( LLC) is legally formed at the state level. No member is personally responsible for the debts and liabilities of the business. Alternatively, the LLC takes responsibility. I’m going to discuss Sole Proprietor vs LLC below:
Filing For Business
You don’t have any filing costs when you become a sole proprietor. But, you have to manage insurance and your tax withholding. On the other hand, while filing for an LLC, you will have to pay between $50 to $500 (depending on the state).
This procedure has simple paperwork, but filing and processing with the state may take some time. Therefore, the overall time duration for this process will take a few weeks.
Typically, in an LLC, there is more than one member, and its members manage the day-to-day operation or may hire a manager to handle it. In addition, a legal document called “Operating agreement” lays down the process of membership and how it will be run. But, in a sole proprietor business, a person will have to maintain everything by himself.
Credit & Loans
When a business has overhead that you have to pay loan or credit, an LLC will be less risky and more credible than a sole proprietorship as you won’t have to pay alone. But, a sole proprietor can’t offer ownership to another person; hence he will have to give the entire loan by himself.
Business Status (Ongoing)
When the owner sells the business or dies, a sole proprietorship business may cease to exist. On the other hand, the operating agreement of an LLC will protect the business’s assets.
I hope that now the Sole proprietor vs LLC concept is clear to you.
Does A Sole Proprietor Need An EIN?
I often hear, “does a sole proprietor need an EIN?”
Generally, an EIN is the employer’s identification number that the IRS (Internal Revenue Service) assigns to your business. It’s much like a Social Security number which identifies your business as a taxpayer.
You (as a sole proprietor) won’t need an EIN if you don’t have any employees and don’t need to submit any pension plan tax returns or excise. But, when you hire an employee or need to file a pension tax return or excise, you will need an EIN. So, I think you got the answer to this question,’ Does a sole proprietor need an EIN?’.
How Much Is Small Business Insurance?
You may be wondering, “how much is small business insurance?” Now, I’m going to discuss the answer to this question. Generally, small business insurance coverage depends on the specific need of your company.
However, the average cost for small business insurance is about $400-$800 annually or $34-$67 per month. Still, you must remember that you may have to spend more dollars if you need more coverage.
Some Common Categories Of Small Business Insurance
General Liability: This insurance covers the liability of property damage, defamation, and bodily injury that cost around $40/per month.
Professional Liability: This liability is also called errors and omissions insurance, which costs about $60 per month. It covers the mistakes of your company.
Workers’ Compensation: This policy costs about $50/month, and it covers employees’ lost work wages and medical costs.
Data Breach Insurance: Data breach insurance (Cyber liability insurance) costs about $100-$150/ month, plus it will cover data breaches and cyber attacks expenses.
I hope you have a clear understanding of “How much is small business insurance?”.
When you are a sole proprietor, you will have many facilities as you can quickly start and operate the business. In addition, you will receive all business revenue personally and don’t need to pay state unemployment tax. But, there are certain disadvantages too. Thus, there is no alternative to sole proprietor business insurance to protect your sole proprietorship.