Workers' compensation insurance for sole proprietors

A sole proprietorship without employees typically is not required to carry workers' compensation insurance. However, some states, such as California, will require specific types of contractors to carry this policy, even if they don't employ anyone else.

Even when it's not required by state law, workers' compensation insurance is a wise choice because of the financial protection it provides and because it may be required to secure a contract or job. More specifically, sole proprietors are strongly encouraged to purchase a policy to:

As a sole proprietor, your biggest liability is often worker misclassification – treating a worker as an independent contractor when the state views them as an employee.

Each state has unique workers' compensation laws and methods of determining if a worker is a contractor or an employee. If you're a sole proprietor or general contractor hiring help, your state might view independent contractors or subcontractors as your employees and require you to have workers' comp for them.

Typically, states use the "right of control" test to draw a distinction: the more you control the worker's hours, tools, and methods of the job, the more likely they are to be classified as an employee. This likelihood increases if the worker doesn't offer their services to the general public.

In addition to workers' compensation insurance, you may also need the following types of insurance as a sole proprietor:

Third-party claims for bodily injury or property damage, such a client injury at your office or damage you cause while working on client property, could result in an expensive lawsuit. If you operate your business out of your home, it’s unlikely that your renter’s or homeowner’s insurance would cover these accidents.

General liability insurance gives you financial protection from these very common third-party claims.

Commercial property insurance offers financial protection for your workspace and its business contents, and is often required by landlords to sign a lease. If you own or rent a workspace, or if you have expensive equipment, inventory, and other business assets, commercial property insurance would help pay for the repair or replacement if the property is damaged, stolen, or destroyed.

As a sole proprietor, you are typically eligible to combine commercial property with general liability insurance in a business owner's policy (BOP) – a bundle that usually has a lower premium than buying each policy separately.

Errors and omissions insurance, also known as E&O or professional liability insurance, can offset the cost of a lawsuit if a dissatisfied client sues you over your work. Those who offer professional advice and services buy this coverage in case a client accuses them of making a mistake, missing a deadline, or failing to deliver on a contract.

Every state requires commercial auto insurance for vehicles that are registered to a business, or the ability to compensate someone in case of an auto accident. In the event of an accident, a commercial auto policy would cover the legal bills, medical expenses, and property damage.

For sole proprietors, your personal auto insurance policy will likely exclude coverage when you drive your own vehicle for business purposes. If you drive your personal vehicle for work, you should consider hired and non-owned auto insurance (HNOA) to make sure you're protected.

Cyber insurance protects sole proprietors from costly data breaches or malicious software attacks. It offers crucial protection if you handle sensitive information, including customer names, email or physical addresses, phone numbers, credit card information, or Social Security numbers. It covers your expenses related to incident response, such as customer notification, credit monitoring, legal fees, and fines.

Cyber insurance is vital for professionals in various industries that deal with sensitive customer information, including tax preparers, real estate agents, mental health counselors, or management consultants.

Cyber insurance is doubly important for tech professionals responsible for cybersecurity at other businesses. Because of the risk of third-party lawsuits, technology errors and omissions insurance (tech E&O) is recommended over a standalone cyber policy. Tech E&O bundles cyber with E&O insurance to protect you against claims that your IT advice or a coding error led to a data breach or cyber incident at a client's business.

Inland marine insurance provides coverage for your moveable business property, such as products, tools, machinery, and specialized equipment, while it's in transit over land or stored at an off-site location. It can cover expensive camera equipment for photographers shooting off-site, or cooking equipment for a food truck owner. 

A type of this policy known as tools and equipment insurance provides coverage for items under $10,000 that are less than five years old. It is commonly purchased by construction or installation contractors, landscapers, or cleaning service professionals.

Compare quotes from multiple top-rated U.S. insurance companies with Insureon’s free online application. Find quotes for workers' compensation insurance for the self-employed and independent contractors, as well as other policies to protect your business.