Working-alone guide

Business insurance types for people who work for themselves

Insurance is easy to postpone when you are starting out, because nothing has gone wrong yet. It is also one of the few protections available to a one-person business. This guide follows the SBA's description of business insurance. It does not quote premiums or recommend insurers; prices depend on your work, location and history, and only a quote can tell you.

Structure is not a substitute

The SBA notes that an LLC or corporation can protect personal property from lawsuits, but that protection has limits, and that business insurance can fill gaps. If you are a sole proprietor, there is no separate entity at all; see business structure and EINs.

What is required

According to the SBA, the federal government requires every business with employees to have workers' compensation, unemployment and disability insurance, and some states require additional insurance. Requirements vary by state; your state's website is the place to check. If you work alone with no employees, these employer requirements may not apply to you in the same way, but some clients and contracts require you to carry particular coverage before work begins. Read contracts for insurance clauses.

The six common types the SBA lists

General liability insurance. For any business. The SBA says it protects against financial loss from bodily injury, property damage, medical expenses, libel, slander, defending lawsuits, and settlement bonds or judgments.

Product liability insurance. For businesses that manufacture, wholesale, distribute or retail a product. It protects against loss from a defective product that causes injury or bodily harm. Relevant if you make or sell physical goods.

Professional liability insurance. For businesses providing services. The SBA says it protects against loss from malpractice, errors and negligence. Consultants, designers, bookkeepers and others whose work product can cost a client money often look at this coverage.

Commercial property insurance. For businesses with significant property and physical assets. It covers loss and damage to company property from events such as fire, smoke, wind and hailstorms, civil disobedience and vandalism.

Home-based business insurance. For businesses run from the owner's home. The SBA describes coverage added to homeowner's insurance as a rider that can protect a small amount of business equipment and provide liability coverage for third-party injuries.

Business owner's policy. For most small business owners, especially home-based ones. The SBA describes it as a package combining typical coverage options into one bundle, which can simplify buying.

Matching coverage to the work

Start from the risks, not the product names. Some examples of the kind of question to ask:

• Clients come to my home. What happens if a visitor is injured?
• My advice or design could cost a client money. What if they claim my mistake caused a loss?
• I make or sell things. What if a product hurts someone?
• My equipment is my business. What if a laptop, camera or tool is stolen or damaged at home or on a job?
• I drive for work. Does my auto policy cover business use? Ask your auto insurer directly.

The SBA's general rule is to insure against things you would not be able to pay for on your own.

The SBA's four steps

The SBA outlines four steps to buy business insurance:

1. Assess your risks. Think about accidents, natural disasters or lawsuits that could damage your business.
2. Find a reputable licensed agent. The SBA notes agents receive commissions from insurers, so look for one interested in your needs.
3. Shop around. Prices and benefits vary significantly; compare rates, terms and benefits from several agents.
4. Re-assess every year. As your business grows, liabilities change.

Questions to ask before you buy

• What exactly is excluded?
• Is the policy "occurrence" or "claims-made," and what does that mean for claims after it ends?
• What is the deductible, and the limit per claim and in total?
• Does it cover work done in other states or remotely for out-of-state clients?
• Will it cover a contract's requirement, such as naming a client as additional insured?

Write down the answers. They are easier to compare in a table than from memory.

Putting it in the numbers

Insurance is a recurring cost. Add quotes to your startup sheet and factor them into prices on the quote floor. A rate that does not cover insurance is lower than it looks.

Insurance rules and requirements vary by state and change. Check with your state and a licensed agent for current requirements.