TL;DR
Sole proprietor insurance is business insurance for someone who runs a business in their own name, without incorporating. It matters more for a sole proprietor than for a corporation, because in law you and your business are the same: a claim against the business is a claim against you. Here’s what that means, which coverages sole proprietors in Canada commonly buy, what your home insurance won’t do, and how to get quotes.
Do sole proprietors need business insurance?
Usually no law requires a sole proprietor to have business insurance, but many need it anyway, because they’re personally responsible for anything the business owes. If a client is hurt, a customer’s property is damaged or a client says your work cost them money, the claim can reach your own savings and property.
In practice, someone often asks for insurance before you start:
- Clients and general contractors commonly ask for proof of liability insurance before they hire you.
- Landlords usually require tenants to carry liability insurance.
- Some professional regulators and licensing bodies require their members to carry professional liability insurance.
- Lenders may require you to insure equipment or property they finance.
How being a sole proprietor affects your liability
A sole proprietorship is an unincorporated business owned by one person. The Canada Revenue Agency notes that the owner has no separate legal status from the business, takes on all its risks, and that those risks extend to personal property and assets. That’s the biggest risk of a sole proprietorship: there’s no line between what the business owes and what you own.
Business insurance doesn’t change that legal position. What it does is pay for covered claims, and the legal costs of defending them, up to the limits of the policy, so that money doesn’t come out of your own pocket. Anything the policy excludes, or any amount above its limit, is still yours.
Incorporating is the other way people separate business and personal finances. A corporation is a separate legal entity, and its shareholders generally aren’t responsible for its debts. But a corporation still faces claims, still usually needs insurance, and is still asked for proof of it by clients and landlords. Whether to incorporate is a question for a lawyer or an accountant, not something insurance decides.
Won’t my home insurance cover my business?
Usually not, or not much. The Insurance Bureau of Canada says a home policy typically gives only a small limit for business tools and equipment, may not cover them away from home, and that the personal liability section of a home policy typically doesn’t cover claims arising from your business, such as a client hurt at your door or a dispute about your work.
That personal liability section is often what people mean by “personal liability insurance”. It protects you in your private life, not your work. If you run your business from home, tell your home insurer, ask what isn’t covered, and ask whether it offers a home business extension. A separate business policy is often still needed for liability.
Which types of business insurance sole proprietors commonly buy
Most sole proprietors start with general liability insurance and add other cover depending on what they do. This table is a general guide, not advice for your business.
| If you… | Ask about | Why |
|---|---|---|
| Meet clients, visit their premises or sell to the public | General liability | Covers claims that you injured someone or damaged their property |
| Give advice, design, consulting or other professional services | Professional liability (errors and omissions) | Covers claims that a mistake in your work cost a client money |
| Own tools, equipment, stock or a workspace | Commercial property | Covers your business property against fire, theft and other insured losses |
| Rely on your premises or equipment to earn | Business interruption | Replaces lost income after an insured loss shuts you down |
| Hold client data or take payments online | Cyber insurance | Helps with the costs of a data breach or cyber attack |
Two coverages usually don’t apply. Directors and officers insurance is designed for corporations and other organizations with directors, so it’s rarely offered to a sole proprietor. Builders risk covers a building project while it’s under construction, so you’d only need it for a specific project. If you use a vehicle for work, ask your auto insurer whether your policy covers business use.
If you work in the trades, see contractor insurance for what clients and general contractors usually ask for.
When a contract asks for proof of insurance
When a client, landlord or general contractor asks for proof of insurance, they usually want a certificate of insurance from your insurer or broker. It lists your coverage and limits. See what a certificate of insurance is for how to get one and what to check.
Read the contract before you buy, because it often sets the terms for you:
- The limits, such as a set amount of liability cover per claim
- The coverages, such as general liability and professional liability
- Additional insured status, which means adding the client to your policy, not just giving them a certificate
- How long cover must last, sometimes beyond the end of the work
It’s easier to buy the right limits at the start than to change a policy when a contract arrives.
Workers’ compensation if you work alone
Workers’ compensation is a separate, provincial program, not private insurance. Each province has its own board and its own rules for owners. In Ontario, the WSIB says most businesses must register within 10 days of hiring their first employee, and that registering before you hire isn’t required.
Construction is the main exception. In Ontario, WSIB coverage is mandatory for sole proprietors and independent operators who work in construction, even without employees, with some exemptions, such as certain home renovation work. In other provinces, check with your workers’ compensation board.
What affects the cost for a sole proprietor
The price of sole proprietor insurance is set by the insurer, and it depends mostly on:
- What you do, since some work leads to more claims, or bigger ones
- Your revenue
- The limits and deductible you choose
- Your claims history
- Where you work: at home, at clients’ premises or in your own space
- The value of the equipment or property you insure
For published estimates and how insurers build a premium, see how much business insurance costs.
Premiums are commonly a business expense. The Canada Revenue Agency lets you deduct commercial insurance premiums on buildings, machinery and equipment you use in your business, on line 8690 of form T2125. Vehicle and home-office insurance are claimed on other lines, and life insurance premiums usually can’t be deducted. An accountant can tell you how to claim your own.
Getting quotes as a sole proprietor
Having these ready makes quotes faster and more accurate:
- What your business does, in plain words
- Your annual revenue, and how long you’ve been in business
- Where you work, and whether clients visit you
- The value of your tools, equipment and stock
- Any limits or coverages your contracts or lease require
- Any past claims
When you’re ready, tell us about your business and we’ll refer you to licensed brokers who can quote. For an overview of every coverage, see business insurance, and if you’re in Ontario, business insurance in Ontario.
