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Do I need business insurance as a sole trader?

April 19, 2022
Working for yourself is liberating — but it isn’t without risk.When you set up your own business you become your own boss, meaning that the buck stops with you. All the responsibilities former employers would have handled for you now rest on your shoulders, so you’ll want to make sure you’re covered for every scenario.Getting business insurance for your small business isn’t just a good idea, but in some cases is a legal requirement. We’ll be covering the different types of business insurance you can get as a sole trader business owner and how to settle on the right policy for you.

Do I need business insurance as a sole trader?

The short answer: it’s definitely a good idea to get business insurance as a sole trader.The longer answer: the type of insurance you’ll need to get for your sole trader business depends on various different factors, but in some instances it’s a legal requirement to have certain types of business insurance.The main factors you’ll need to consider when settling on whether to get business insurance include the following:
    The type of work you doWhere you workBusiness assetsYour turnoverIf you have employees

What is a sole trader?

Before we dive into sole trader business insurance, we’ll start by defining what a sole trader actually is.

A sole trader is a self-employed individual who, unlike a limited company, is a singular legal entity with their business. This means that HM Revenue and Customs (HMRC) sees you and your business as one, meaning that you can keep all your business profits after you’ve paid taxes on them.

This does mean, however, that you are personally liable for any accidents, injuries or otherwise, so being insured help soften the blow to your business should you incur any financial losses from legal fees or business inactivity, as well as providing peace of mind should anything go wrong.

What insurance do I need as a sole trader?

The different types of cover available to you are endless, so we’ve narrowed it down to the main 7 you ought to consider for your sole trader business.

Professional indemnity insurance

You can’t please everyone, but if a client claims work you’ve done has put them out of pocket, you could find yourself in trouble.Whether a job you completed wasn’t up to scratch or advice you gave led to a financial loss, professional indemnity (PI) insurance will cover you if the client decides to sue.Professional indemnity insurance can compensate your client and pay for a specialist solicitor to defend you in court. It won’t, however, cover you for ‘faulty workmanship’, for instance if you install a boiler that causes a gas leak.

Public liability insurance

Accidents happen — yet some are more costly than others.Whether it’s coffee-stain on a new carpet or a slip on a rug, if a member of the public gets injured or someone’s property gets damaged, you could be held liable — even if it’s not your fault.Whatever the scenario, public liability (PL) insurance covers both your legal costs and any compensation you owe.

Product liability insurance

Occasionally lumped in with public liability insurance, product liability insurance covers you if a product you or your business installed, manufactured, supplied or maintained by you injures a member of the public or damages their property.

Employers’ liability insurance

Self-employed people don’t always work alone. Whether you’ve hired staff to support your sole trader business or have taken on a contractor for a few months, you are, in the eyes of the law, an employer.

As a result, by law you will have to take out employers’ liability insurance.Failure to do so could not only see you fined up to £2,500 for every day you don’t have cover, plus a £1,000 fine for not displaying the correct certificate, but can cause you a lot of trouble if an employee gets sick or injured at work and decides to sue.It’s important to note that anyone who works for you is your responsibility, even if they’re not a permanent employee. According to HSE, employees can be any of the following:
    Full-time or part-time contracted employeesTemp or seasonal staffSecondeesVolunteersWork experience studentsFreelancers and subcontractors using your equipment, in your office, under your supervision
Since you never know when you’ll need an extra hand, we recommend getting employers’ liability cover before making your first hire.

Portable equipment insurance

Whatever your trade, it’s likely that you’ll need some equipment to do your job. If something unexpectedly breaks down, or gets damaged, lost or stolen, you could see your business put on hold until you get a replacement.Portable equipment insurance can pay for repairs or replace any electronic and portable business equipment you have that you need to do your job.This can include laptops, mobile phones, digital cameras and tablets, although you’ll need to read the fine print of your policy to see what exactly is covered.

Cyber insurance

You don’t need to be running an IT consultancy to be vulnerable to a cyberattack. If you use email or have a website — which, in the digital age, is almost guaranteed — you’re at risk.If a cybercriminal gets their hands on your network, you could find your business under a cyber-attack or at risk of a data breach. Not only will this grind your business to a halt, but you could find yourself with a lot of unhappy clients if their sensitive data gets out.Cyber insurance can help manage the situation by bringing in a team of incident responders as soon as you’ve realised an attack has taken place.If enough damage has been done, cyber insurance also offers financial protection to cushion the impact of inactivity on your business, as well as helping with any legal repercussions.

Personal accident insurance

You’ll also need to make sure you have insurance for the most important part of your business — yourself!Personal accident insurance can help support your business while you’re out of office, or act as a form of income if you can’t work.

Do I need insurance if I work from home?

If any of your business activities take place at home, you’ll need to check with your landlord or home insurer to see if you’ve got the right cover.Your regular home insurance might not cover business activities carried out in the home, so if a client gets injured or their personal property gets damaged, you could be held liable.

How much does sole trader insurance cost?

Similar to how the type of business insurance you’ll need depends on different factors, the quote you’ll get from different insurance providers can depend on the following:
    The job you do. If you’re a plumber or an electrician, the higher level of risk involved in your job may mean paying more for your insurance.The work you take on. If your work takes place in a busier area where more people can be affected, you’re likely pay a higher premium than sole traders who work in smaller, quieter and more private areas.The size of your business. Most insurance providers will want to know what your annual turnover is when deciding a business insurance quote.Your claims history. If you’ve had claims made against you in the past, you may need to pay more.

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