Sole Proprietor Insurance Requirements for Home Inspectors

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There are a lot of benefits to being a sole proprietor home inspector, like independence and flexible work hours. But before you get started, you need to invest in the right business insurance.

Sole Proprietor insurance is a necessity to protect your home inspection business from risks such as a slip-and-fall accident, or damage to your client’s home. In the event of an accident, insurance will make sure your business can keep running. Keep reading to learn more about the benefits of Sole Proprietor insurance for home inspectors and what it covers.

Sole Proprietor Vs. LLC Home Inspector

When you started your business as a home inspector you probably compared the different entity types to try to decide what would be best for you and your business. The most affordable way to get started is, of course, a sole proprietorship. This type of business entity is also good if you decide not to have employees. The downside to being a sole proprietor, besides having to do all of the work yourself, is that you are personally on the hook for any liability that can arise from your operations. The good news is there are plenty of insurance options for you so that you can help to mitigate the risks.

A bit more of an expensive way to start your business is to become an LLC or limited liability company. The pros of an LLC include separating liability from your assets as well as more tax benefits. An LLC may have more risks though because usually, an LLC will be a growing business which means hiring employees. Employees can create more problems for a business owner and sometimes may not be the best option depending on what your future goals are. An LLC will need more insurance policies to cover their unique exposures which means more money out of your pocket. It is important to determine what your goals are when choosing if you want to be a sole proprietor or a limited liability company.

Why Does A Sole Proprietor Home Inspector Need Insurance?

There are several reasons why sole proprietors need Home Inspectors insurance to protect themselves.

Professional Services – You are providing a professional service and ultimately providing an opinion about someone’s home. Customers are depending on you to let them know what may be wrong with the home before they purchase, or before they attempt to sell it. If you miss something and it ends up causing them financial harm, you could be in for a lawsuit.
Property Damage – When you are in someone’s home there is always a chance that you could break something. You are inspecting rooms, possibly going into a basement or attic where some things can be stored, and climbing on a roof. If for some reason you use a ladder to go on the roof and it ends up falling on the neighbor’s car, you will have to pay to fix it.
Injury – Still with the roof scenario, if you slip and fall and are hurt, you will need insurance to help pay for the medical bills. Not to mention the fact that if you are seriously hurt, how will you continue to bring in income if you cannot work?
Contracts – A great way to bring in extra money is to subcontract for other businesses. With this comes a contract or written agreement where this company will probably require certain insurance coverage. Sometimes they will require insurance policies you don’t have and this could cause you to be in breach of contract.

Besides all of these critical reasons, a home inspector should have insurance because it will give you peace of mind. When you are a hard worker you want to be able to enjoy your passion and reap the rewards. If you end up in the middle of a lawsuit because of an unforeseen incident, you could jeopardize your entire business if you don’t have the right insurance. Also, be sure to check with your state. Some states will have certain insurance requirements for business owners, whether a sole proprietor, LLC, or corporation.

Does A Sole Proprietor Home Inspector Need E&O Insurance?

Errors & Omissions insurance, also known as E&O or Professional Liability, may arguably be the most important insurance policy a home inspector purchases. Since you offer a professional service, people are depending on your knowledge and expertise to deliver quality work. If you make a mistake by error or omission, the customer may sue you.

Let’s say you complete an inspection for a homeowner and all looks good, but for some reason, you missed that there was a roof leak. The roof leak ends up causing mold damage in the home and the customer sues you for not having this information in your report. If it is proven that you missed it, you could be on the hook for the damages. Even if you are not at fault, you will have to defend yourself in court which can cost a ton of money. The defense costs will be paid for by your E&O policy.

What Other Types of Insurance Does A Sole Proprietor Home Inspector Need?

A Professional Liability insurance policy, while maybe the most essential coverage for a sole proprietor home inspector, is not the only insurance policy that you will need to be fully protected. Please also consider the following insurance policies, if they apply to your unique business operations.

General Liability – Another essential policy for any business, but especially a home inspector is General Liability insurance. Remember us mentioning the damage to the neighbor’s car from the ladder? Or you could drop a heavy flashlight onto a homeowner’s glass coffee table and it shatters. Both of these scenarios are covered under this policy, as well as third party bodily injury. Someone could slip and fall over your tools, or if you have an office and clients visit you there that leaves you open to that exposure as well.
BOP – A great way to save money as a business owner is to package together General Liability and Property coverage in the form of a BOP, or a Business Owners Policy. It comes with many extra bells and whistles including Business Income coverage which will provide you with your normal operating expenses should you be unable to work due to a covered peril. It will also cover your building if you own one for your business and any business personal property.
Commercial Auto – Certainly you have a truck or van to haul your tools and ladders from home to home, and this cannot be insured on a Personal Auto insurance policy. A Commercial Auto insurance policy is necessary when you are using your vehicle for business, even if it is a private passenger auto. It works similarly to a Personal Auto policy in that it covers your auto liability, physical damage, first-party benefits, uninsured and underinsured liability, and rental and towing.
Cyber Liability – It is likely that in today’s marketplace that you take online payments, possibly with your phone. If this is the case, you should definitely have Cyber or Data Breach Liability. There is a growing number of claims for data breaches due to hackers and viruses, so you should protect your customers and your business by having this important coverage.
Commercial Umbrella – When it comes to liability and the litigious society we live in; it may feel like the liability limits you have are not enough. And if you ever consider growing your business, you may be right because that means more risk. A Commercial Umbrella Liability policy can help to make you feel more protected. It will act as an extra layer of liability sitting over the top of your underlying liability coverages on General Liability, Auto, and Workers Compensation if you have it. It also can fill in some gaps that may be hidden in some of your policies. As always make sure you read all of your policies so you understand all of the inclusions and exclusions.
Workers Compensation – While you probably don’t have employees make sure you read those contracts well if you do subcontract work. Sometimes a company you work for will not care if you have employees, they will want to see a Workers Compensation policy where you are covered. You can always try to negotiate this out of the contract, but many times we sign them to get the job started and read it after the fact.