What Insurance do I need as a Sole Trader? Your Questions Answered

Sole traders are the backbone of the British economy. In 2022, over half of the 5.5 million small businesses in the UK were sole traders. Sole traders are those brave entrepreneurs who either run their businesses alone or whose business structure means they take full responsibility for any financial losses. If you're a sole trader, the buck stops with you. If something goes wrong in your business, you must deal with the economic consequences, either using money from the company or from your own pocket.

Learning about insurance for a sole trader can help you safeguard your finances and sleep better at night as you secure a solid action plan for all those "what if" scenarios.

Why insurance for sole traders makes sense

Your business might be booming, but could you really shoulder the financial burden of an expensive personal injury claim or the loss of the vital equipment you use to run the business? Every sole trader's business is unique, and when you take out the right cover at the right level to address the applicable risks, you can feel reassured that your business will survive should something go wrong.

Insurance stops the worry. It helps you focus on pushing your business forward. Once you've built a glowing reputation, insurance enables you to maintain it by allowing you to deal swiftly and professionally with any legal claims made.

Does a sole trader need insurance?

There is no legal obligation for British sole traders to take out insurance unless they employ staff. Despite this, holding insurance is a standard contractual requirement among local authorities and clients in the large corporate sectors. So, does a sole trader need public liability insurance or professional indemnity cover? To secure certain clients, yes, they do. In addition to holding such cover to be eligible to work for a client, you may also need to hold a set level of cover to meet their requirements.

When you're battling to balance your business budget or work quietly alone in your home office with seemingly few apparent risks, it may be tempting to skip the step of securing insurance - but can you really afford to? In the next section, you can explore a range of common scenarios that could cost your business and personal finances dearly.

Types of insurance policies for sole traders

You have probably pondered the question, what insurance do I need as a sole trader? Each sole trader faces a bespoke set of risks, but there are several core insurance covers that set a solid foundation for a sole trader policy. These include:

Public liability

Public liability cover, though not a legal requirement, can be considered a worthy financial investment for any business that interacts with members of the public in some way. Does a sole trader need public liability insurance? Consider the following -

• Can members of the public access the building or location where you work?
• Do clients visit you at your business premises or home?
• Does your business organise or host events?
• Are you contracted by a local authority or by large corporate bodies?

If you answered yes to any of these, you may benefit from holding public liability insurance. This type of cover can be used to deal with claims made against you by a member of the public for personal injury or property damage for which they claim you are liable. Public liability insurance will cover the cost of compensation, medical bills, and legal fees up to the level you take out.

It's essential to consider the level of cover you select carefully. Usually, you'll be invited to choose between £million, £million, £million, and £10million of public liability cover. If you work from home and only occasionally have clients visit, £1 million may be adequate. If you work for a local authority, you may be asked to take out £5 million of cover. If your work involves large numbers of clients or members of the public, you may prefer the security of £10 million of cover since the high volume of people increases the risk of a claim being made.

Though you may be on top of your health and safety, accidents can and do happen. If a client comes to your premises, trips on a loose floor tile, and injures themselves, they could make a claim. If you're a tradesperson working in someone else's home and accidentally stain their carpets or break a family heirloom, you could be held liable for the cost of a replacement. Public liability cover is ready should the unexpected happen – and with members of the public, the unexpected certainly can happen.

Professional indemnity

Even if you never come face to face with your clients, you’re still at risk of claims for compensation. If a client believes that they lost money or incurred reputational damage because of advice you gave them, a mistake you made in your work, or due to negligent or substandard work, they can make a claim for these losses.

Professional indemnity cover can be taken out to help you pay compensation and legal fees in such scenarios. If you hold high-value contracts or work with large corporations (who are notoriously litigious), you may like to take out up to £10 million of cover.

Employer's liability

Unlike the other covers discussed, employer's liability is a legal requirement in the UK if you employ staff, even on a part-time basis. You'll need to hold at least £5 million of cover unless your only employees are direct family members. This cover deals with claims made by employees for injury or illness attributable to their course of employment with you.

Personal property contents, tools, and equipment cover

From your laptop and work phone to the tools and equipment of your trade, protect your finances by covering them against accidental damage, loss, and theft. If your work takes you out and about, it's essential to consider this cover, as it makes mishaps more likely.

Even if you're careful with your business belongings, a spilt cup of coffee on your laptop or the theft of your tool kit can happen in the blink of an eye. This type of cover means you can get your business back up and running when the worst happens.

Personal accident

You're not entitled to statutory sick pay when you're a sole trader. This can weigh heavily on the mind of a small business owner. What if you're a carpenter and you fall from a ladder and put your back out? How would you cope as a mobile therapist if a serious illness left you too fatigued to work? If you're injured or too sick to work for a prolonged period, do you have a financial cushion to keep you and your business afloat? Personal accident cover offers that financial support if you're suddenly unable to run your business.

Business insurance vs sole trader insurance

Sole trader insurance is actually a type of business insurance. Both are umbrella terms used for a collection of covers that protect a business. Generally speaking, business insurance policies may include additional cover for business premises and contents.

To get the right type of insurance for a sole trader, it's best to speak to a specialist provider like Park Insurance to receive the bespoke cover that best suits your business insurance needs.

Are there sole traders who don’t need insurance?

If they never cross paths with clients or members of the public in the course of their work, does a sole trader need public liability insurance? Probably not. However, even if you only work with clients remotely, you may still wish to consider professional indemnity as you’re not immune to financial claims relating to negligent work.

Cost guidelines for sole trader insurance

Sole traders may worry about the cost of insurance, but with so much at stake in the event of a compensation claim or business loss while uninsured, it's worth working out how to include at least certain covers within your business budget.

Several factors will be taken into account when calculating the premium, including:

• The type of business-some businesses face more risks than others. For example, tradespeople will face a higher premium than a web designer.
• The size of the business-it's great to be successful, but be aware that the larger your turnover, the higher your premium.
• Location-Because certain parts of the country have higher legal fees, your location can impact the cost of your premium.
• Claims history - if you've made a claim before, you'll likely pay more for your insurance cover than someone who is claims-free.

Top tips for finding the best policy

There are two critical considerations for a sole trader when they're looking for insurance – does it reflect all the unique risks faced by the business, and is it affordable?

The best way to get the right policy is to find an insurance provider willing to tailor the policy to meet your needs. It allows you to set key covers like public liability, employer's liability, professional indemnity, and tools and equipment at the right level. As a result, you won't end up paying too much by being overinsured, and it will avoid the damaging scenario of being underinsured. It also lets you pick only the covers you need, so you don't spend needlessly on covers that you don't.

If the cost of insurance is impacting your decision, remember that you can split the cost by paying monthly. Although this will ultimately cost more than paying annually, it can be a more accessible route for sole traders with lower budgets.

FAQs

I work from home - am I covered by my home insurance?

Standard home insurance is not designed to cover business activities, and it may not cover equipment such as laptops and computers that you use in the course of your business.

Can I add additional cover to my sole trader policy?

It can be highly advantageous to add additional covers to a standard policy. As your business expands, you may need to add coverage, such as employer's liability or increase the levels of coverage you hold.

What type of occupations can benefit from sole trader insurance?

You can secure sole trader insurance across all trades and industry types. From gardeners, cake makers, and delivery drivers to tradespeople, freelancers, and hairdressers, sole trader insurance can offer the protection you need to keep your finances safe.

Insurance for a sole trader requires the personal touch, with an insurer that understands the unique risks faced by the individual business. Park Insurance has been working with the UK's small business owners for over three decades, offering bespoke insurance policies that deal with every eventuality for the ultimate peace of mind. Give our team of friendly insurance experts a call today to see how Park Insurance can support your business.