Your Guide to Understanding Sole Proprietorship Insurance

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Did you know that roughly two in five businesses will file an insurance claim in the next decade? While filing a claim isn't the end goal, you might want to consider purchasing sole proprietorship insurance.

That way, if something bad happens to your business, you can have the coverage you need. Your insurer can cover unexpected costs to help reduce the financial impact on your business.

Read on to learn more about insurance for a sole proprietorship.

What Is a Sole Proprietorship?

A sole proprietorship is a business structure, and it might be one of the easiest to start. As a sole proprietor, you could operate as a business under your legal name and social security number.

You can also set up a DBA or "doing business as" name. A DBA allows you to conduct business under an identity other than your own personal name.

Many individual freelancers are sole proprietors since it's a simple structure. Other business structures require you to fill out a large amount of paperwork and could cost a significant amount of money to start.

Why Operate as a Sole Proprietor

Every business structure has pros and cons. As you look at business structures and the various expenses, such as business insurance, consider why you may want to be a sole proprietor.

This structure doesn't make sense for every business. However, if you primarily work alone, it can be an excellent choice for the following reasons.


First, a sole proprietor is simple and quick to start. If you want to start an LLC, for example, you should find an available name in your state and file the proper paperwork.

As a sole proprietor, one of the first things you will likely focus on is getting your first client or customer. You may also need to request an employer identification number (EIN) from the IRS if you have employees or meet other qualifications.

Sole proprietorships usually don't cost a lot of money to set up, which can be nice if you're on a budget. You can allocate your startup costs to other expenses, such as insurance coverage.

More Control

If you operate as a sole proprietor, you likely could have more control over your business. You could choose if you want to work with investors or hire employees.

That can be nice if you want to make most of the decisions. Plus, you can always change your business structure later if you want to bring on additional owners or have other changes in mind.

As you start your business, having control can be useful. It could allow you to take on the clients you want or sell the products you believe in the most.

Sole Proprietorship Insurance

While a sole proprietorship comes with many benefits, its biggest drawback is a lack of legal separation and protection. The law typically sees you and your business as the same entity.

So, if a client wants to sue you for your work, they could also go after your personal assets, such as your house. Fortunately, you can buy insurance for a sole proprietorship.

Consider some of these insurance options and learn about how they can help you.

Business Owners Policy (BOP) Insurance

Business Owners Policy (BOP) insurance is a more comprehensive type of business insurance. You can get multiple types of coverage in one policy so that it likely takes care of the essentials.

This type of policy can be easier to set up and could be more affordable than buying each type of coverage separately. It could give your business and yourself "peace of mind".

You can always purchase other types of business insurance outside of the plan. However, a BOP can cover most of what you may need to help protect your business as you start and grow.

A BOP from PolicySweet® covers general liability, property, and cyber insurance.

General Liability Insurance

General liability insurance is one type of coverage that comes as part of a BOP plan. Another name for it is business liability insurance as it can help protect you from liability claims.

It can cover claims relating to third-party injury or property damage. The coverage might help you pay for legal costs or medical expenses if a case determines your business is at fault.

Slander and libel accusations as well as advertising injuries and reputational harm can also fall under general liability.

Property Insurance

If you have any physical assets, you might want an insurance policy that helps cover your property. Business property insurance is another type of coverage designed to help protect your inventory, equipment, and furniture.

This insurance can help you if someone steals your property or if damage occurs. Business property coverage can protect your tools and equipment that you use to run your business.

The same is true of furniture, such as desks or chairs in your office. If you sell physical products, property insurance might also cover the inventory you have on hand.

Cyber Risk Insurance

The rise of the internet has brought with it some extra risks for businesses. You may want to consider cyber risk insurance as it could protect your business against incidents involving hackers or data breaches.

Whether you have an online or storefront business, you might use the internet, at least for email. Digital tools can offer a lot of benefits to you as a sole proprietor, but they aren't immune to security issues and similar risks.

Cyber insurance can help you hire professionals to determine the extent of data loss from a cyber-attack. It can also be useful for paying for customer notifications and legal costs if an attack is severe.

Even if you conduct most of your business in person, it doesn't hurt to consider cyber insurance.


At PolicySweet we offer HomeHQSM, which is coverage for home-based businesses. Many sole proprietorships start by operating out of a home.

If that's the case for you, you might want to consider a home-based business insurance policy. The plan could offer more than your renters or homeowners policy, from business liability to business stock coverage.

Home-based business insurance can cover businesses in a variety of industries from accounting to freelance writing. The coverage is particularly useful if you have clients visit your home or if you carry inventory.

You never know what can happen or if someone can get hurt while doing business in your house. You should consider obtaining a policy for as long as you plan on operating your business out of your home.

Workers' Compensation

Workers' Compensation is one type of insurance for a sole proprietorship that's easy to miss. You may not think about Workers' Compensation, especially while just starting out.

If an employee gets hurt or sick from work conditions, the policy can help pay for medical care and lost wages. Some businesses also obtain the policy to comply with state law, so be sure to consult with a lawyer on your situation.

Even if you don't need it to run your business legally, you may still want to consider acquiring a policy if you have employees. That way, you'll be ready to help protect your employees and your business.

How to Choose Sole Proprietorship Insurance

Sole proprietorship insurance can be an excellent tool to help protect yourself as you run your business. To help choose the right policy, consider what type of coverage you need.

Almost any sole proprietor can benefit from liability coverage. If you have or plan on having inventory, you may want property insurance.

When you do any amount of business online, you should look into cyber insurance.

You may also want to consider a Business Owners Policy or home-based business coverage like HomeHQ. Finally, if your business has employees, it doesn't hurt to get Workers' Compensation insurance.

Will You Obtain Sole Proprietorship Insurance?

Sole proprietorship insurance isn't a specific thing, but you can purchase general business insurance like any other company. That way, you can help protect yourself if a client or customer sues you, someone steals your inventory, you experience a cyber-attack, or an employee becomes injured.

Be sure to look into different business insurance options to decide what policy meets your needs.

Are you ready to get insurance for a sole proprietorship? Contact us to get a quote today.


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