A sole proprietorship isn't the most common type of business structure in the US. As of 2024, there were over 834,711 sole proprietorships in the US compared to 21.6 million LLCs.

They’re the backbone of small business, from freelancers to shop owners to consultants. The issue is that most don’t have any insurance at all. A recent Next Insurance survey found that 44% of small business owners operate without coverage. That’s almost half the market exposed to massive financial risk if something goes wrong.

Below, we'll explore why sole proprietors need business insurance in the US.

What is a Sole Proprietor?

A sole proprietorship is the simplest business structure. It’s just you. The business and the owner are legally the same. There’s no separation between personal and business finances. That means all profits are yours, but so are all the risks.

You don’t need to register as a company or file separate taxes. You can start operating today with almost no paperwork. It’s flexible, cheap, and ideal for freelancers or one-person startups. But that simplicity comes with a big downside. You have no liability protection.

If your business gets sued, or if a customer or client files a claim, your personal assets are at risk. Those assets include:

• Your house
• Savings
• Your car

Or anything valuable worth taking to settle business debts.

Why Sole Proprietors Are More At Risk

Everything you own is tied to your business decisions.

You might think the chance of something like that happening is small, but the data says otherwise. A recent Hiscox 2024 Small Business Risk Report stated that one in three small business owners faced a legal threat or claim last year.

And in 2025, the risk is even higher. Businesses are facing:

• Economic pressure

• Supply delays

• Tighter contract terms

All of it means that more customers are turning to legal action when they’re unhappy.

The Types of Business Insurance Sole Proprietors Can’t Overlook

If you’re running a business as a sole proprietor, a single claim could wipe out your savings overnight. The right business insurance for sole proprietorship business structures protects that. Here are the policies that matter most:

1. General Liability Insurance

This is the most basic form of business protection. It covers things like property damage, customer injury, or third-party claims.

2. Professional Liability Insurance

Also known as errors and omissions (E&O) insurance, it is essential for consultants, freelancers, and service providers. An E&O policy covers negligence, mistakes, or bad advice that causes a client financial loss.

3. Business Property Insurance

A homeowner's insurance policy won't cover your business. And with aesthetics and wellness clinics becoming more commonly run from the back garden, we think this is an important one to mention. Business property insurance covers tools, computers, and inventory from fire, theft, or damage.

4. Business Interruption Insurance

If something stops your business from operating—like a fire or natural disaster—this policy helps cover lost income until you’re back up and running.

Even one of these policies can make the difference between a minor setback and total financial loss.

When to Use Business Insurance

Business insurance is for protection when things inevitably go wrong. It's not an if; it's a when.

Use it when:

• A client or customer claims your service caused damage or loss.
• Someone gets hurt because of your business activity.
• You experience property damage or theft.
• Your business is disrupted by events outside your control.
• You face a data breach or cyberattack.

You don’t need to be a large company to file a claim. In fact, sole proprietors are the ones who most often need to. Small businesses don't have the same cash flow as large enterprises to fund a claim.

Running a business on your own gives you freedom. With lawsuits rising and risks growing, skipping business insurance isn’t saving money. It's such a risk to gamble everything you own instead of paying the relatively small monthly premium and an excess if you ever do find yourself in the middle of a claim.