As the sole proprietor of your business, there is literally no distinction between you and the business. You earn all of the profits outright. But, because there is no distinction between your small business and you personally (as sole proprietor) you are held to be completely responsible for any losses or liabilities suffered by your business. This means that if a customer takes you to court, you alone are financially responsible for covering litigation costs and restitution fees.
It’s for this reason and others that you need business insurance for sole proprietors. Without it, you could be heading to bankruptcy.
You are the business, and vice versa
Sure, while being the sole proprietor guarantees you and you alone all the profits of the business, you are also the business. This means you are solely financially responsible for employee salaries, meandering sales, debt repayment and consumer backlash.
If a product you sell causes harm to a customer, they can sue you. If you’re already struggling paying rent for your shop and paying your employees, can you afford the costs associated with a lawsuit? Most likely not. You can be taken to court by your employees, vendors, customers and even your landlord. Eight out of 10 small businesses close their doors just after a year in business. As a sole proprietor, your odds of staying in business without insurance are infinitesimal if you get taken to court. Policies like small business interruption and professional liability insurance will cover your legal fees and keep your business afloat if someone tries to take you for all you’ve got.
Responsible for property damages
If the shop or office you are renting is destroyed by fire or other natural disaster, damaging your equipment or product beyond repair, you (again) are solely financially responsible for making the repairs and getting the replacements. However, with a general liability insurance and business interruption insurance package, you will be financially covered for the rebuilding and replacement of the property that was lost, at only the cost of the annual insurance premium and a deductible.
Responsible for liability
If an employee is injured on the job and you do not offer workers’ compensation, said employee can sue you for medical fees, disability and loss of independence. Worse still, if an employee should die as result of their injuries, the family can sue you for a lifetime’s worth of lost wages and funerary costs.
Nothing can be worse than an employee getting hurt on the job or losing their life. To protect your employee (and yourself) invest in workers’ compensation. Workers’ compensation covers medical fees, lost wages, therapy and disability.
Homeowners insurance doesn’t cover small business losses
If you’re running your business out of your home and assume your homeowners insurance will cover an unforeseen accident, think again. If equipment is destroyed or you’re hurt doing something work-related, because your homeowner’s insurance agent wasn’t given the full-breadth of what goes on in the home, you’ll be denied coverage. A home business insurance plan will cover you, and bundling policies will get you a discount on your premium.
You can’t take care of everything, so let CoverHound take care of you. For a free small business quote, click here. If you store a lot of sensitive customer or business information electronically, you should also consider a cybersecurity insurance policy.