| NYC Business Group
A Quick Guide to Insurance Policies that Sole Proprietors Need
Since sole proprietorship is not a separate entity like S-Corp or LLC, business liabilities can become personal liabilities. Therefore, sole proprietors are advised to buy the right insurance coverage to protect their business and personal assets. Accidental injuries or mistakes can put your business at risk and face losing your assets. Ergo to protect yourself against lost wages, lawsuits, and damaged property, consider buying the right coverage. Small businesses do not have the resources to fight and survive an expensive lawsuit. Therefore, it is prudent to get the right coverage beforehand. Here are insurance policies a sole proprietor need:
1. General Liability Insurance
For sole proprietors who work at night and weekends from their homes, their risk levels are low. To be safe, general liability insurance can help you greatly. Besides the slip and fall coverage, general liability insurance also offers protection against 3rd party bodily injury. Here are additional coverages offered by general liability insurance:
- 3rd party property damage if someone else’s property is damaged
- Product liability coverage – this is essential if you are sued over a product defect
- Advertising injury – this comes in handy if you are sued for something you published
2. Business Owner’s Policy (BOP)
With a BOP, you get commercial property insurance and general liability insurance as one package. If you want to save money while getting more coverage, BOP is the right choice. Allow our Agency give you a quote on Business Owner's Insurance Today! With this package, you will enjoy more protection with additional benefits, including:
- Income replacement – you enjoy income replacement if your business isn’t operating either due to property damage or stolen property, which halts operations.
- Customer lawsuits
- Defamation lawsuits
- Replacing damaged or lost business property
3. Errors & Omissions Insurance (E&O)
Also known as professional liability insurance, E&O is essential to professionals offering real estate, consulting, IT, and accounting services. It is easy to make professional errors like missed deadlines, data breaches, or incomplete work. These errors can be costly, and sole proprietors should protect themselves against such risks. Depending on the insurance provider, you might need to add a rider to your insurance policy to protect yourself against intellectual property infringement. We can shop around markets, and get you the right package for your business!
4. Worker’s Compensation Insurance Coverage
A worker’s compensation insurance is vital when you start hiring employees. Sometimes employees call in sick due to work-related injuries or illness, and you may have to cover their hospital bills. This insurance policy covers work-related injuries or illnesses. The insurance cover can cover medical bills, missed wages, or ongoing medical care. It is essential to familiarize yourself with the requirements in your state to avoid making a mistake. While some states require sole proprietors to buy worker’s compensation coverage after hiring the first employee, some require the sole proprietor to reach a certain employee threshold before buying the policy. In other states, the sole proprietor might be required to buy the insurance coverage even if he is working alone. Therefore, research well and seek professional advice to make the right choice.
5. Commercial Auto & Hired Non-Owned Coverage
Hiring & non-owned auto coverage (HNOA) is a requirement if you use your car for work because personal vehicle coverage cannot be used. You can purchase HNOA as a stand-alone insurance policy or as a rider to your general liability coverage. If your business own vehicles, commercial auto insurance is required in most states. With commercial auto insurance, you can cover liability costs for your own vehicles. For example, when you damage another person’s vehicle, medical expenses incurred, and physical damage from storms, theft, or vandalism.
On the other hand, HNOA covers liability involving personal vehicles. If your car or rented car is involved in an accident when picking up supplies, making deliveries, or any work-related activity, HNOA will cover the liability costs. If you are running personal errands during business hours, driving to or from work, or having physical damage to your car, HNOA won’t provide coverage.
6. Business Interruption Coverage
Your business can be interrupted temporarily by a catastrophic event making it hard for you financially. Suppose you encounter a catastrophic event, such as fire or extreme weather conditions that temporarily force you to close. In that case, business interruption coverage can cover daily expenses, lost revenue, rent, and relocation costs (if need be). Sometimes adding riders to your coverage helps cover irregular operating costs like hiring temporary workers, leasing equipment, or paying overtime.
Do you want a contingency if a partner, primary supplier, or customer disruption affects your business financially? Adding contingent business interruption coverage as a rider is a right approach. This coverage is vital:
- If a nearby business affects your business directly, for example, a restaurant next door to a theatre helps attract customers.
- If you rely on one supplier for certain materials
- If a few customers support your business financially.
Some people find it easier to buy commercial umbrella coverage. While this coverage fulfills a contract obligation, it may not provide the much-needed protection. It can cover slip and fall injuries, employee injury lawsuits, and accidents involving work vehicles. However, you will not be protected from professional liability lawsuits, business property damage, and malpractice lawsuits. Remember, personal umbrella insurance cannot cover liabilities incurred via your business.
The Cost of Insurance for Sole Proprietors
To calculate the cost of insurance for your business, insurance companies consider the following factors:
- Length of business – how long you’ve been in business or if you’ve experienced working for someone else (in the same industry are determining factors). Inexperienced sole proprietors are expected to pay more.
- Claims history – your rates will be affected if you have a history of claims.
- Coverage limits – this depends on what you want to insure. If you have many tools or vehicles, you can expect to pay more and vice versa. Remember, if you have a higher deductible, you can reduce your insurance cost.
- Size of business – you may start small and pay considerably low insurance coverage. However, as the business grows, you need more coverage, thus increasing your insurance cost relatively.
Why Should You Get the Right Coverage?
Getting insured shows that you are a professional and have financial stability. Typically, it is not easy to hire a contractor if you are not insured because clients do not like liabilities! In fact, some landlords require a certain level of coverage, for example, general liability insurance. Therefore, to be professional, attract new clients and protect yourself against liabilities, consider buying the right insurance policy for your business. Working with a broker and understanding the coverage you have is important, get a FREE Quote today!