A sole proprietor is an enterprise or business that is run by a single person. The owner himself/herself owns and runs the business and is solely responsible for the profits and losses of the business. It is a simple and easy form of business and can be started with minimal capital.
Since the sole proprietors are responsible for everything that happens in the business, they need to be prepared for all kinds of risks and uncertainties. To protect the business and to help it overcome risks, it is imperative that the business with a sole proprietor purchases certain insurance policies.
Here are some critical common risks that a sole proprietorship business can face.
Risk related to data: With an increasing number of businesses having an online presence, the risks related to data breach, data loss, and others, are increasing.
Bodily injury and property damage to the third party: Be it a vendor falling in your business premise and getting injured or a customer who got hurt using a product that was sold by your company; unexpected mishaps due to circumstances beyond your control can result in injuries or lead to property damage and you could be held liable for this.
Product-related risks: A company that manufactures, sells or supplies products can face several risks considering the large supply chain in product-related businesses. Even a small fault, such as an expired food product causing food poisoning could pose huge risks.
Here, we’re sharing information about some of the insurance for sole proprietors.
Professional Liability Insurance
This insurance policy is also known as Errors and Omissions Insurance. This insurance policy can be used when a client sues a business for providing unsatisfactory services, breach of trust or if the business’s below-par services lead to a financial loss for the client. The insurance policy helps reimburse the costs of the legal cases as well as the costs of out of court settlements.
If a business with a sole proprietor provides services then it is useful for them to purchase the Professional Liability Insurance. Examples of businesses with sole proprietors which purchase this insurance policy include IT companies, manual labourers, architecture firms, etc. In certain cases, these businesses might be legally bound to have such insurance policies before they start working for their clients. Moreover, in the absence of such insurance protection, these small businesses may turn bankrupt if they have to pay a huge payout amount.
Workers Compensation Insurance
This insurance policy helps pay for the medical costs of the employees who suffer accidents while on duty or suffer from illnesses. In case of the death of the worker, the insurance policy reimburses the costs to their dependents. In certain countries of the world, it is mandatory for a business to have purchased Workers Compensation Insurance. If they do not do so they will not only have to bear the medical expenses of their employees but will also have to pay penalties and fines for not having that insurance.
Workers Compensation Insurance is mandatory, irrespective of whether a business has just hired its first employee or if it has full-time employees or part-time employees. The premium of the Workers Compensation Insurance is paid by the business owner. Business with a sole proprietor will have to purchase a Workers Compensation Insurance if the business decides to employ any worker for itself.
Commercial General Liability Insurance
Commercial General Liability Insurance helps to pay for third-party claims of financial losses as well as legal costs if the business has been sued for offenses such as a copyright violation, plagiarism, or if a client suffers bodily injuries while visiting the office premises of the business.
Business Liability Insurance is crucial for businesses with sole proprietors. This is because in the eventuality that there are business-related lawsuits filed against them, they will be subjected to immense financial vulnerability if they do not have a business liability insurance. This insurance, therefore, provides such businesses with greater financial security than any legal provision.
Things that are covered in General Liability Insurance
- Medical costs for a third party that suffers bodily injuries while visiting the office premises of the business.
- Property repair and replacement costs for any kind of property damage that has been brought about by the business employee or anybody working on behalf of the business.
- Costs of fighting legal cases if the business has been sued by a client. This also includes costs of out of court settlements. The costs of out-of-court settlements may include compensation amounts, punitive charges and other non-monetary costs.
- A business with a sole proprietor may operate through a rented property and the property may suffer losses due to reasons such as a fire outbreak. In that case, the costs of repairing the property will be borne by Commercial General Liability Insurance.
- If a business gets sued for copyright violation or is accused of slander or of making false claims, by a rival business, then, the legal costs of such lawsuits are covered under Business Liability Insurance.
Cyber Risk Liability Insurance
Internet related risks and risks related to data are among the most critical risks faced by businesses. Even sole proprietorship businesses can face cyber risks. The Cyber Risk Insurance policy can protect businesses from risks related to IT.
It provides coverage for first party and third party losses. First-party losses: Direct losses accruing to the healthcare company that got breached. Coverage under this include data breach/privacy expenses related to the management of the incident, legal costs, Business interruption (monetary loss) due to a network downtime resulting from a cyber attack. Third-party losses: The costs suffered by related third parties — customers or partners — as a result of a cyber breach.
How to Buy Insurance for Sole Proprietorship?
There’s no such thing as easy business insurance when it comes to buying it. If you’re looking to buy liability insurance for sole proprietorship, it can be a bit complex if you don’t have adequate understanding of business insurance policies. In that, making some inaccurate decisions and leaking resources could very well be a possibility. .
When buying sole proprietor business insurance, one of the first things to figure out is the type of insurance you need. As mentioned earlier, there are several options there. It depends on the kind of business you run, as well as distinct needs and requirements. For instance, if you offer professional services, you would primarily require professional indemnity insurance. On the other hand, if you run a one-person store, you should invest in general liability insurance for sole proprietors. So, as a first step, to determine what type of liability insurance for sole proprietorship you should buy, you need to establish your business needs..
Once you’re clear on the “what type”, move on to find out your coverage requirement. Some businesses require a bigger coverage in comparison to others. For instance, if you’re more likely to be sued, you should ideally get a bigger coverage, which would also cost you higher. On the contrary, if your liabilities are limited, you can do away with a smaller coverage as well. Again, figuring out your coverage requirements requires thorough research and assessment of your needs..
This entire process can be time-consuming and confusing. To steer clear of the basic mistakes and not end up with the wrong sole proprietor liability insurance plans, consider getting help from experts. An experienced insurance broker can help you discover better sole proprietor insurance plans from top insurers and establish your coverage requirement. Further, they can help customize the plan to best fit your requirements. So, get assistance from an expert and buy the best sole proprietorship insurance policies..
Sole proprietorship businesses are easy to launch but hard to build. And those who work hard to build their businesses on their own would not want to take any risks and let the business suffer uncertainties. PlanCover can help you secure your sole proprietorship business with the right kind of insurance plans.