Guide to business insurance for a sole trader

No-one sets out to make a mistake nor to cause an accident but when these things do happen it pays to have insurance to protect your financial interests. Business insurance for a sole trader is no exception, and in this guide we breakdown the insurances you’ll need to have if you’re self-employed.

Business insurance for sole traders

No matter what business you’re in, if you undertake contractual work or provide a paid service, you need to have insurance that can cover you in the event that something goes wrong and legal action gets brought against you.

What type of sole trader insurance you need, however, can vary dramatically depending on factors such as the nature of your work and the specific scope of services you offer.

For that reason, sole trader insurance can be a little more complex than other kinds of insurance on the market but it’s by no means something you should avoid.

After all, fail to take out adequate cover and you risk leaving yourself financially vulnerable if you need to make a claim, potentially putting assets like your home at risk.  

But before we get into the specific types of business insurance for sole trader, let’s outline exactly what we mean by ‘sole trader’.

What is a sole trader?

A sole trader is a self-employed individual who is the sole proprietor or owner of a business. Sole traders typically work alone, and have full autonomy and control over a business’s finance and operations.

For that reason, sole traders are personally responsible for business debts, and any personal assets you own are at risk should you fail to meet any payment demands.

As a sole trader you’re also taxed as an individual and liable for class 2 and 4 national insurance contributions.

What business insurance do I need as a sole trader?

As a sole trader you’re responsible for every aspect of your business, from pitching and quoting for work, to accounting, marketing, HR and public relations - and that’s on top of doing your actual job.

For that reason, sole traders may need a combination of business insurances to ensure all assets and business functions are adequately protected in the event a client, customer, or member of the public attempts to bring a claim against you.

Here are just some common business insurance policies you may need as a sole trader:

Professional indemnity insurance

Whilst not legally required, professional indemnity insurance is one of the most important business insurances to consider if you’re operating as a sole trader.

This type of insurance offers protection if work you have produced results in financial losses or reputational damage for a client and they decide to bring legal action against you.

Some companies will insist on professional indemnity insurance as a condition of contracting a sole trader’s services. Even if this isn’t the case, you should still consider this type of protection as assets such as your home will be at risk if you operate without professional indemnity insurance.  

Public liability insurance

If your work brings you into contact with the public in any capacity than you absolutely have to have public liability insurance.

As with professional indemnity insurance, public liability insurance isn’t a legal requirement for a sole trader, but if a member of the public were to incur an accident or injure themselves as a direct result of your work or actions, public liability would offer protection in the event they decide to sue you.

Business vehicle insurance

Whether you’re an electrician, a taxi driver, or just use your car to travel to meetings, if you’re operating a work van or other vehicle to run your business, you’ll need to invest in business vehicle insurance. This is the case even if your car is already insured for personal use.

If you operate multiple vehicles for your business it may be more economical to take out fleet insurance, which offers protection for several business vehicles.

Business interruption insurance

Just as the name suggests, business interruption insurance offers protection in the event you can’t access your business premises to work, for instance because of a fire or a break-in. This nature of business insurance would tide you over financially until you’re able to operate again.

Critical illness insurance

Critical illness cover is a policy that pays out in the event you become seriously ill and unable to work. As most sole traders only generate income while they are working, this type of insurance can be a saving grace if you were to be diagnosed with an illness such as cancer and unable to work for a period.

Goods in transit insurance

If your business regularly ships stock or freight, whether by air, road, rail, or sea, then goods in transit insurance can offer you protection against loss or damage whilst the item is being transported to its destination.

Tool insurance

If you’re a tradesman such as a plumber or builder, for whom tools are essential to your work, you may want to consider taking out dedicated tool insurance, which can pay out compensation if your tools sustain damage, are stolen, or get misplaced.

A final word on business insurance for sole trader

As you can see, when it comes to sole trader insurance the scope of products on the market is comprehensive, with some policies more relevant than others. What we’ve covered here is just the tip of the iceberg, so to ensure you’re fully covered, with an adequate level of protection, speak to our sole trader insurance brokers for more information.