Insuring a one-person business
There is no company standing between you and a claim.
A sole proprietor and their business are the same legal person, so a claim against the business is a claim against the individual, reaching personal assets rather than stopping at a company.
That is the opposite of the intuition, which is that a small operation has a small exposure. The operation is small; the liability is not scaled to it.
Personal policies exclude the work
This is the practical problem, and it is consistent across both policies a sole trader usually relies on.
A personal auto policy generally excludes business use, so the vehicle is insured right up until it is being used for the thing that pays for it. Nothing visible changes — same car, same driver, same road.
A homeowners or renters policy covers business property only to a small stated limit and generally excludes business liability entirely, so a visiting client's injury sits outside it even though it happened at home.
What a one-person business usually needs
The list is shorter than for a business with employees, and it is driven by the same question: which exposure would end this.
- General liability, where anyone comes near your work or you go to their premises
- Professional liability, where what you sell is advice, design or professional judgement
- Commercial property or tools cover, where the equipment matters and personal policies cap it
- Commercial auto or hired and non-owned cover, where a vehicle is used for work
- Cyber, where you hold client data
- Generally not workers' compensation, until there is somebody else — though how owners are treated varies by state
Contracts will ask before clients do
Many sole traders buy their first policy because a client contract required it rather than because they assessed the risk, and the requirement usually names general liability at a stated limit.
It is worth reading the insurance clause before signing rather than after, because contracts routinely require covers a one-person business does not hold and endorsements that have to be arranged deliberately.
Being unable to meet an insurance requirement after signing is a considerably worse position than negotiating it beforehand.
Incorporating does not insure you
Forming a company changes the legal position and is worth advice in its own right. It does not remove the need for insurance.
A company can still be sued, and a claim can still name the individual who did the work. Professional liability in particular follows the person's work regardless of the structure around it.
Where a business does incorporate, the policies need to be reissued in the company's name. A policy naming an individual who no longer trades in that capacity is a problem waiting for a claim.
Common questions
Trading alone changes the size of the exposure, not its existence — and as a sole proprietor a claim reaches you personally. Personal auto and home policies both exclude the business activity.
A personal auto policy generally excludes business use, so cover can stop exactly where the earning starts. Regular business driving needs commercial cover or, at minimum, a conversation with the insurer.
Generally not until there is somebody else, but the treatment of owners varies by state and some businesses are required to carry it for themselves. Confirm it with your own state's authority.
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This page is general information, not advice about your specific circumstances. A licensed insurance professional can tell you what’s actually available to you.
General information only, not insurance advice. Coverage, availability, and terms vary by insurer and by state, and are subject to underwriting. Quote My Policy LLC is a licensed insurance producer. Nothing here binds coverage.