Is my business too small for business insurance?

Is my business too small for business insurance?

Maybe you work from home and your entire business runs from your laptop. You don't have employees, a storefront or a fleet of vehicles. So it's natural to wonder: Is my small business too small for business insurance?

The answer is: Probably not. The risks of running a business depend more on what you do and how you operate than on the size of the business. In some cases, coverage could be legally required. But even if it’s not, many freelancers, solo business owners and home-based businesses could benefit from business insurance protection. In this guide, ERGO NEXT explains how business insurance could help small business owners.

Key takeaways:

• Many freelancers, solo business owners and home-based businesses could benefit from business insurance, even if they're the only employee.
• Business insurance can be legally required in some instances by clients, contracts and professional licensing.
• The right coverage depends on the work a business does and the risks of business operations — not on annual revenue or how many people work there.

Small business owners often don’t know they need insurance

Business insurance could help protect your business from the kinds of things you do every day. Here are a few aspects of your business that insurance might cover:

• The advice or recommendations you give to clients, including consulting or financial.
• The services or physical work you do in someone else's home or on a jobsite.
• The designs, copy, code or other deliverables you create for hire.
• The products that you make or sell online or in person.
• Deliveries of products, equipment or tools.
• Time spent with clients at a coffee shop, office or coworking spaces.

The type of coverage that would serve your business best is based on the activities that you perform for work — not the size of your team or your revenue.

Many small business owners believe they don't need business insurance because their business feels too small or too low-risk. But a big misconception among independent workers and solopreneurs is that they focus on the size of the business instead of the risks that come with running one. The reality is that many business risks begin as soon as you start working with clients or selling products.

Here are some of the most common misconceptions about business insurance that independent workers get wrong:

"My business is too small."

Many insurance claims have nothing to do with the size of a business. A client misunderstanding, an accident or a lawsuit can affect a solo business owner or a company of any size.

"My work isn't risky."

Risk isn't limited to physical jobs or spaces. If clients rely on your advice or services, there's always the possibility of a professional mistake, miscalculation, missed deadline or misunderstanding.

"I only work from home."

A home office doesn't automatically mean business operations are covered by a homeowners or renters policy.

"It's just me."

Clients depend on you, so there's still a chance something could go wrong. And if it does, you could be held financially responsible. In addition to your business assets, your personal assets — such as your private home or financial holdings — could also be at risk if you’re a sole proprietor.

"Business insurance is too expensive."

Many owners assume coverage costs way more than it actually does, ruling it out before even getting a quote. Coverage and protection can be under $25 per month for low-risk workers.

"I'll buy insurance later when my business grows."

One of the biggest misconceptions about business insurance is that risk grows in proportion to your business. But it’s often the case that the early stages of a business are when every dollar matters most.

How could business insurance help small business owners?

Business insurance isn't about expecting the worst — it's about preparing for problems. If your business depends on your income, your reputation or the trust of your clients, it's worth asking whether you're comfortable taking on all of your business risks alone.

Your business activities, not your business size, create risk. Working for yourself comes with plenty of uncertainty. Paying out of pocket for a legal claim, an injury, an accident, property damage or another unexpected mishap doesn't have to be one of them.

1. Business insurance could help with the costs of accidents and unexpected events
This could include costs like:

• Legal fees to respond to a lawsuit or claim. Research from the U.S. Chamber of Commerce found that businesses with less than $1 million in annual revenue face legal costs that are more than seven times higher, relative to their size, than the largest businesses.
• Repairing property damage or equipment.
• Medical expenses if you're found responsible for an accident.

2. It could help you gain more business opportunities

Business insurance may be a necessity for some clients, partners or municipalities. You might need it before you can:

• Sign a contract with a client.
• Lease commercial space.
• Work with larger companies or government agencies.
• Sell at events, fairs, trade shows or online marketplaces.

3. Business insurance could help you save time and focus on work

If a claim or dispute arises, your attention shifts from running your business to solving a problem. That might mean:

• Responding to legal notices or client complaints.
• Paying for expenses.
• Spending hours resolving a dispute instead of serving customers or growing your business.

Can business insurance be required for solo workers and freelancers?

Yes and no. While business insurance requirements vary by state, city and profession, owners sometimes find they need coverage for different reasons. A client might ask for proof of insurance before signing a contract, a landlord may require it as part of a lease or a potential business partner may not move forward without it.

Here are a few example scenarios.

Could business insurance be required if:

• A client asks for proof of insurance?

Often yes. Many clients require proof of insurance, called a certificate of insurance (COI), before they’ll let you sign a contract or begin work.

• You work as a subcontractor or vendor?

Often yes. General contractors, larger businesses and event organizers frequently require insurance before you can participate in a project or event.

• You have employees?

Often yes. Workers' compensation insurance is required in most states if you hire employees (even part-time and seasonal ones), though requirements vary.

• You lease commercial space?

Sometimes. Landlords may require liability or property insurance as part of a lease.

• You sell products online, at events or markets?

Sometimes. Online marketplaces, retailers and craft fairs may require sellers to carry liability insurance.

• Your profession requires business insurance coverage?

Sometimes. Certain professions and industries have insurance requirements tied to licensing or state regulations.

The U.S. Small Business Administration (SBA) recommends evaluating your business risks and understanding your insurance needs as part of your overall business plan. Because insurance requirements vary by state and industry, check your state's insurance department or licensing agency if you're unsure what applies to your business.

Which business insurance could a solo business owner need?

Not every business owner needs every type of coverage. A freelance writer and a landscaper have different risks, so their insurance needs will likely look different, too.

Do you work with clients or the public?
You may consider: General liability insurance
What it could protect: Could help cover injuries to others, property damage to other people’s property and certain legal claims.

Do you consult, give business or financial advice or provide professional services?
You may consider: Professional liability insurance (also called Errors and omissions insurance, or E&O)
What it could protect: May help if a client says your work, advice or a professional mistake caused them financial harm.

Do you store digital customer information or use technology?
You may consider: Cyber liability insurance
What it could protect: May help with certain costs related to cyberattacks, data breaches and other covered cyber incidents.

Do you have employees?
You may consider: Workers' compensation insurance
What it could protect: Could help cover work-related employee injuries and illnesses and is required in most states.

Do you own business property, products or inventory?
You may consider: Commercial property insurance
What it could protect: May help cover business property damaged by some events, such as fire, theft or vandalism.

Do you drive for work?
You may consider: Commercial auto insurance
What it could protect: Could help cover some costs around accidents while driving for business purposes.

Which types of solo workers and freelancers could benefit from small business insurance?

Here are a few examples of situations where business insurance could help.

• A marketing consultant misses a deadline on a campaign that a client says hurt their sales.
• A photographer accidentally knocks over an expensive vase during a family photo session and they’re asked to replace it.
• A handyman damages a customer's hardwood floor after dropping equipment and they’re asked to cover the repairs.
• An accountant makes a miscalculation that the client says caused financial losses.
• An electrician can't start a job because the property manager requires proof of insurance before work begins.

Other workers who face business risks could include software developers, consultants, financial advisors, dog walkers, Amazon sellers, interior designers, house cleaners, craft vendors, yoga teachers, and event planners.

Do I need business insurance if I work from home?

If you're running a business from home, learn the limits of where your personal policy ends and home business insurance coverage begins. According to the National Association of Insurance Commissioners, homeowners insurance typically excludes or limits coverage for many business-related losses and liabilities.

Running your business from home doesn't eliminate business risks. For example:

• A client visits your home office, trips on your stairs and holds you liable for their injuries.
• Your business laptop is stolen.
• A contract requires proof of insurance before work can begin.
• Professional mistakes and misunderstandings that cause a client to suffer a financial loss is a type of business risk.

Sometimes business risk looks like a missed deadline, a coding error, a lost file or miscommunications with a client who believes your work caused them financial harm. If people pay you for your judgment, advice, services or deliverables, your business has risk — even if your office is your dining room table.

Business insurance doesn't have to be complicated

Thirty-two percent of small business owners say it’s too confusing to understand their business insurance coverage gaps.

If you have questions, get an online quote or consider contacting a licensed, U.S.-based insurance professional.

Is my business too small for business insurance FAQ

Get quick answers about business insurance for freelancers, solo workers, or small business owners of one who work from home.

Do I need business insurance for my small business?

Many small businesses of solo operators could benefit from business insurance, even if they have no employees or storefront. Whether you need coverage depends on your business activities, client requirements and the risks you face — not just the size of your business.

Do I need business insurance if I'm self-employed?

Maybe. Business insurance isn't always legally required if you're self-employed, but many freelancers and solopreneurs choose coverage to help protect against claims, accidents, property damage or to satisfy client requirements.

How much does small business insurance cost?

The cost of business insurance depends on factors such as your industry, location, coverage and claims history.

Can a client require me to carry business insurance?

Yes. Many clients, commercial landlords, general contractors and government agencies require proof of insurance before they'll sign a contract with you or allow work to begin. They may ask for a certificate of insurance (COI) as proof of your insurance coverage details.

Will homeowners insurance cover my home business?

Not always. Homeowners or renters insurance may provide limited coverage for some business property, but it doesn't typically cover every business-related risk. If you operate a business from home, review your policy or speak with your insurance provider to understand your coverage and exclusions.

This story was produced by ERGO NEXT and reviewed and distributed by Stacker.