Do You Need Business Insurance If You're Self-Employed?

November 2023
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Ten percent of the US workforce is self-employed. That's nearly 16.2 million people working for themselves and building their own businesses. Self-employed workers are pursuing control over their careers, job fulfillment, and financial gain -- the median net worth of self-employed workers is 4x higher than employees -- but one of the biggest reasons workers seek self-employment is for family reasons.

Whether you're newly self-employed or have been working for yourself for years, building a successful business for yourself requires a certain level of risk management and mitigation.

Do You Need Business Insurance if You're Self-Employed?

Business insurance protects business owners from the perils of running a company. One of the biggest risks to your business, whether you're self-employed or a small business owner, is the risk of lawsuits.

  • 36% to 53% of small businesses are sued every year.
  • 43% of all small businesses are threatened with a lawsuit every year.
  • About 45% of small businesses are currently involved in litigation.
  • 90% of all businesses experience a lawsuit at some point in their lifespan.

You may not think your self-employed business could be involved in a lawsuit. But every year, nearly 100,000 lawsuits are filed for personal injury or property damage in U.S. civil courts. Any number of incidents could lead to a lawsuit, including:

  • You could be involved in an auto accident on your way to a client's office.
  • The goods you make or sell could injure a client.
  • Your professional advice could cause someone's business to lose money.
  • A delivery driver could slip and fall on your front porch when delivering office supplies.

Business insurance helps protect you from having to pay out of pocket for any number of unforeseen accidents, incidents, injuries, or the high costs of defending yourself in court.

What Kind of Business Insurance Do You Need if You're Self-Employed?

Your business is unique, and so are your risks. The best way to determine what types of business insurance will best protect you is to talk to an experienced insurance agent. However, most self-employed business owners can benefit from one or more of the following:

General Liability Insurance

General liability insurance can benefit every business of every size across every industry. It protects your business in the event of a lawsuit or claim for third-party bodily injury or property damage. This is the safety net if a client or someone else (not including employees) decides to sue your business for medical bills or repairs to their property.

General liability coverage usually includes another form of third-party injury protection that self-employed business owners may benefit from -- advertising injuries. Advertising injury coverage can protect you against claims of copyright infringement, libel, slander, or stolen ideas.

Commercial Auto Insurance

If you drive your personal vehicle while doing business activities, your personal auto insurance coverage may not protect you in the event of an accident or collision. If you are driving to a client's business or picking up goods from a supplier and are involved in an accident, your personal auto insurance isn't designed to cover it. Your insurance provider may even drop your coverage if you are involved in an accident while performing a business-related activity and try to file a claim against your personal auto policy.

Commercial auto insurance is designed to cover the vehicles that your self-employed business owns or operates. Just like personal auto, commercial auto offers varying levels of coverage, such as basic liability, collision, comprehensive, and more.

Professional Liability Insurance

Professional liability insurance is ideal for service-based self-employed owners, such as accountants, bookkeepers, website developers and designers, and more. Professional liability protects you in the event of a claim or lawsuit alleging that your advice or professional misstep led to a financial loss for your client. Professional liability is also sometimes called malpractice insurance or errors and omissions insurance.

Cyber Liability Insurance

Cyber liability insurance can help you cover the costs in the event of a cyber breach, hack, or if your sensitive customer information gets compromised. Maybe your laptop gets stolen out of your car, or your tablet goes missing. It could be that a hacker breached your email, social media accounts, or other vulnerable system. It's not just tech and IT businesses that can benefit from cyber liability; if you do any work online and use hardware like laptops or software to run your business, you may want to talk to an insurance professional about the benefits of cyber liability.

Workers' Compensation

Workers' comp insurance covers employees who get injured or become ill as a result of performing their job. Workers' compensation insurance is required in most states if you hire employees to help you run your self-employed business. But in some states, like CA, you may need to carry workers' comp insurance even if you are a self-employed solopreneur.

California recently updated its workers' comp requirements to include up to six classes of licensed construction workers who now must carry this coverage even if they have zero employees. Roofers, concrete, HVAC, asbestos abatement, and tree service contractors are required to carry workers' comp in CA, regardless of number of employees.

Does Homeowner's Insurance Cover Your Home-based Business?

Self-employed owners often run their businesses out of their homes, but that doesn't mean your homeowner's policy will provide adequate protection for your business equipment and assets. Standard homeowners insurance policies may provide some limited coverage for business property stored at your home, but not every policy does. Your policy may exclude business property, or your limits may not be high enough to protect the equipment, tools, goods, or materials you keep at home. Don't assume your business property is covered; talk to your insurance carrier and be sure you understand what your homeowner's policy will -- or will not -- cover.

To get a personalized recommendation on the best insurance policies to protect your self-employed business, talk to an experienced insurance professional today. You've worked too hard to build a business for yourself to lose it all in the event of one unforeseen incident or careless accident.

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