Insurance is one of the decisions self-employed people most often postpone, partly because it is confusing and partly because nothing has gone wrong yet. A sensible approach starts with your actual risks rather than a product list: what could go wrong in your work, who could be harmed, and which of those losses you could not afford to pay yourself. This section explains the main types of business insurance in that light, without quoting premiums, because prices depend on your work, location and history.
Start with your risks
Write down the ways your work could cause a loss:
- Injury or damage to others. A client trips over your equipment, or you damage their property.
- Professional mistakes. Advice or work that turns out wrong and costs a client money.
- Your own property. Equipment stolen, damaged or destroyed.
- Products. Something you made or sold harms someone.
- Vehicles. Accidents while driving for work.
- Data. Client information lost or exposed.
Then ask which of those you could pay for yourself and which would be ruinous. The second group is where insurance earns its cost.
The main types
- General liability covers claims from third parties for bodily injury, property damage and some other harms, plus defence costs, depending on the policy.
- Professional liability, also called errors and omissions, covers claims arising from mistakes or negligence in professional services.
- Commercial property or equipment coverage protects business property.
- Product liability applies to businesses that make or sell products.
- Home-based business coverage can extend a homeowner's policy for limited business equipment and liability.
- Business owner's policies bundle common coverages for small businesses.
- Commercial auto coverage may be needed if you use a vehicle for work in ways a personal policy excludes.
What is required and what is wise
For a sole proprietor without employees, few types of insurance are required by law in most situations, though some licensed occupations require coverage. Contracts are a different matter: many clients, landlords and venues require proof of insurance before you start. Once you have employees, legal requirements generally expand, including workers' compensation in most states.
Reading a policy
Policies differ in their definitions, exclusions and limits. Before buying, read the description of covered activities and make sure it matches what you actually do, check the main exclusions, understand the per-claim and total limits, and ask how defence costs are handled. Ask questions in writing and keep the answers.
Your existing policies
Home and auto policies often limit or exclude business use. Check yours before assuming you are covered, and ask your insurer what endorsements or separate policies are available.
Buying sensibly
Get more than one quote, describe your work accurately, and review coverage every year and whenever your work changes. A licensed agent who works with small businesses can help, especially if your work has unusual risks.
Insurance and contracts work together
Insurance pays for some losses after they happen; good contracts reduce the chance of a dispute in the first place. A clear scope of work, defined acceptance steps and sensible payment terms prevent many of the disagreements that turn into claims. Some client contracts also set insurance requirements, such as a minimum amount of cover or a certificate naming the client, so read those clauses before you sign and check them against your policies.
When to review your cover
Policies bought at the start rarely fit a business a few years later. Review your insurance at each renewal and whenever something changes:
- you start offering a new service or working in a new place
- you buy significant equipment or hold more stock
- clients begin visiting your home or workspace
- you take on a large contract or one with specific insurance terms
- you hire your first employee or start using subcontractors
- you form an LLC or change the business structure
Tell your insurer or agent about changes promptly. A policy may not respond to activities it was never told about.
The guides in this section
The guides cover general liability, professional liability, home business coverage, insurance for specific kinds of work and what certificates of insurance are. Start with general liability if you work with people or property in person, and professional liability if you sell advice or expertise.
Guides in this section
- Business owner's policy (BOP): what it bundles and who it suits
What a business owner's policy bundles: property, liability and business income cover, who is eligible, what it leaves out and how it compares.
- General liability insurance for a one-person business, explained
What general liability insurance covers for a one-person business, what it leaves out, how it differs from professional liability, and what to ask first.
- Professional liability insurance for freelancers and consultants
Professional liability (errors and omissions) insurance: what it covers, who needs it, claims-made vs occurrence, retroactive dates and tail cover.