4 reasons why sole proprietors need small business insurance

The 4 reasons why small business insurance is necessary for sole proprietors

At a glance:

  • Sole proprietors tend to have less separation between their personal and business finances. 
  • As a sole proprietor, you are financially responsible for the physical spaces and equipment needed to operate your business.
  • Your liability exposure increases exponentially and you have less to protect yourself from legal action.
  • If you work from home, your homeowners insurance or renters insurance won’t cover your business’s losses.

As a sole proprietor, there is very little distinction between you and the business you run. You earn all of the profits outright. But, you are also responsible for any liabilities and losses suffered by the business. There is often a fine line between success and failure for many proprietorships, and the slightest hiccup can derail an entire operation. This precarious position makes small business insurance a crucial necessity for every sole proprietor.

You are the business, and vice versa

Sure, being the sole proprietor guarantees you reap all the profits of the business, but you are also solely responsible for the business’s obligations and liabilities. This means financial responsibility for employee salaries, operating expenses, debt repayment, unforeseen disasters, and consumer backlash. This can put your personal accounts, assets, and property in jeopardy if your business is unable to pay its bills. Furthermore, you cannot file bankruptcy for your business without filing for personal bankruptcy. As a sole proprietor, your personal finances and the business’s finances are essentially one and the same.

You are responsible for property damages

If your shop or office space is damaged or destroyed, you (again) are solely responsible. All structural repairs and equipment inside the building are going to fall on your shoulders. However, with a Business Owners Policy (BOP) you will be financially covered for rebuilding and replacing of the property that was lost. A BOP combines general liability and business property insurance into one convenient package. It’s the commonsense insurance package for sole proprietors and small business owners that conduct business in rented or owned physical space.

You take on a lot of liability

Lawsuit can be a very real threat to every sole proprietor, regardless of the industry. Most business owners will find it difficult to pay rent, cover operating expenses, and maintain payroll while locked in a legal battle. You can be taken to court by any number of characters including employees, vendors, customers and even your landlord. As a sole proprietor, your odds of staying in business without insurance are very slim if you’re facing litigation. A general liability, professional liability, cyber or employment practices liability insurance policy can cover legal fees, judgements, and keep your business afloat if someone tries to take you to court.

There are no federal laws requiring Workers Compensation. However, all 50 states have workers comp laws on the books, and for good reason. If an employee is injured on the job and you do not offer workers compensation, you can be sued for medical expenses, missed wages, disability and/or loss of independence. Worse still, if an employee dies as result of their injuries, surviving family members can sue you for a lifetime’s worth of lost wages and funeral costs. If the unthinkable happens, workers compensation is there to cover medical expenses and legal fees. A workers comp policy can protect you and your employees while ensuring that you are complying with state laws.

Homeowners insurance and renters insurance don’t cover small business losses

If you’re running a business out of your home and assume your homeowners or renters insurance will cover an unforeseen accident, think again. If work equipment is destroyed or you’re hurt doing something work-related while at home, you’ll be denied coverage. A licensed advisor will be able to determine what type of small business insurance is best for a sole proprietor that works from home and help bundle policies that will get you a discount on premiums.

The bottom line 

As a sole proprietor, you can’t take care of everything all by yourself, so let CyberPolicy take care of you. CyberPolicy offers many resources for sole proprietors to plan for, prevent, and insure against costly litigation and unforeseen accidents. Visit cyberpolicy.com or speak with a licensed insurance advisor at (800) 590-7292 for more details.

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