Workers' Compensation Insurance for a Sole Proprietor


A sole proprietorship is the easiest and least expensive form of business to create. Even this cheap business structure has requirements for insurance, however. Workers' compensation insurance requirements for a sole proprietorship vary by state and industry. A sole proprietor may wish to purchase workers' compensation insurance even if he is not required to do so, because of the protection the insurance can offer him if he is injured at work.

Employee Requirements

If you are the sole proprietor of a business with no employees, you are not required to carry workers' compensation insurance. This requirement may change depending on how many employees you decide to hire for your business. For example, many states require a sole proprietor to purchase workers' compensation insurance when the proprietor hires between three and five full-time employees working at least 35 hours per week. A sole proprietor working in the construction industry, for example, may be required to purchase workers' compensation insurance if he hires even one employee -- regardless of the hours the employee works.

Employer as Employee

As the sole proprietor of a business, you may consider yourself an employee of your business and purchase a workers' compensation insurance policy. This can provide with protection should you become injured on the job and are forced to miss work. Your workers' compensation policy can pay for your medical expenses associated with your workplace injury and replace a portion of your lost wages. Your policy could mean the difference between your business surviving or falling apart if you're forced to stop working.

Purchasing Workers' Compensation Insurance

North Dakota, Ohio, Wyoming and Washington state require business owners to purchase workers' compensation insurance from a state-run insurance provider. Other states, including California, Colorado, Pennsylvania and New York, establish state-run workers' compensation funds to compete against private insurers in order to keep rates reasonably low. The rest of the states require you to purchase workers' compensation insurance from a private insurer licensed to write policies in the given state. The individual premium for a business's insurance depends on the type of business and the relative risk of injury in the business's industry. For example, workers' compensation insurance for a construction business may cost more than insurance for a retail clothing store.

Alternatives to Workers' Compensation

If you elect to not purchase workers' compensation insurance for your sole proprietorship, you may leave yourself open to injury without any form of protection. An individual health insurance plan along with a disability insurance policy can provide comparable protection for you should you injure yourself on the job. Individual health insurance pays for your medical expenses, while a disability policy compensates you for lost wages. The drawback to this alternative is it is essentially two separate policies to do the work of one workers' compensation insurance policy.

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