Sole Trader Insurance

The Best Insurance for A Sole Trader

In the US, sole proprietorship businesses account for about 70% of all businesses. It is worth noting that unlike an S-Corp or LLC, a sole proprietorship is not a separate legal entity. This means that if you operate your business as a sole trader, your business’s liabilities can become personal liabilities. Accidental injuries or mishaps that happen in the course of business can not only put your business at risk, but also your personal assets such as your house and savings. Thankfully, with the right insurance, you can protect your business and personal assets. The best insurance for a sole trader includes:

Commercial General Liability Insurance (CGL)

Commercial general liability Insurance is the basis for an adequate insurance coverage strategy for any sole trader. General liability insurance can be part of a broader coverage or a standalone policy.  A CGL policy protects you against costs emanating from accidental damage to third-parties’ property, bodily injury claims, advertising injury, and personal injury (slander and libel).

For instance, if you’re an electrical contractor and you accidentally cause a damaging fire while handling one of your contacts, you may be held liable for property damage. The liability may mean you paying a significant amount of money to take care of the damages, and the amount may increase exponentially if the customer chooses to sue you. Fortunately, with liability insurance, your insurer will pay the legal fees and cover the property damage (up to your coverage’s limit).

The minimum coverage limit per occurrence is usually $1 million and the aggregate minimum limit is $2 million. On the other hand, CGL’s exclusions include, among others:

  • Professional services
  • Damage to your property
  • •Vehicles used for business
  • Intentional injury 

Professional Liability Insurance 

Sole proprietors who provide professional services to clients such as seo marketing, accounting, photography, and advertising need a professional liability insurance policy. The policy protects you against claims of negligence emanating from your work. For instance, if a wrong entry on a client’s tax return leads to IRS auditing them, your professional insurance policy will kick in and cover some of the costs relating to that claim. Professional liability insurance typically covers the following business-related perils:

  • Alleged negligence or negligence
  • Alleged commissions or omissions
  • Legal defense costs
  • Claims and damages
  • Copyright infringement and more

Professional liability insurance exclusions include:

  • Intentional acts
  • Property damage 
  • Bodily injury
  • Medical expenses
  • Employment matters
  • False advertising
  • Trade secrets and patent

How to Choose the Right Sole Trader Insurance

Some of the key factors to consider when choosing sole proprietorship insurance coverage include, among others:

  • Cost — The cost of a policy typically tends to vary based on factors such as riders and features. Additionally, the cost typically tends to vary from one insurer to another. With this in mind, you should choose a policy that fits your budget.
  • Deductibles – A policy’s deductible is the sum you need to pay, in case there is an incident, before your insurer comes in and pays the rest. Deductibles are often inversely proportional to your premiums, the higher deductible, the lower the premiums, and vice versa. So you should opt for a policy that offers the right balance between the premiums and deductibles.
  • Legal obligations – In some states, sole proprietorships are required by law to have a worker compensation policy, and some require independent contractors to have liability insurance. Ensure you meet your insurance meets the legal requirements. 
  • Your business’s coverage needs – While a general liability insurance policy is the most essential insurance for a sole trader, you may also need other types of insurance. For instance, if you use your vehicle for business purposes you may need to get commercial auto insurance. 

Ultimately, you should base your decision on your product/service offerings. For instance, if your sole proprietorship provides general contracting services, you likely need general insurance. On the other hand, if your proprietorship provides professional services, such as accounting services, you may need both general liability and professional liability insurance policies. 

Conclusion

As a sole trader, you’re personally on the hook for your business’s liabilities, meaning you could potentially lose your savings or house if someone sues your business and wins a large award. However, with the help of an insurance agency, you can protect your business and personal assets and focus on growing your business with confidence.

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