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When you first register as a sole trader, there is a lot to take in. Here at Crunch, we help sole traders take care of the accountancy side of things – but there are lots of other responsibilities you need to be aware of. Insurance is one of those topics, something that’s easy to miss but absolutely vital to have. No matter how small your new venture is, having the right insurance in place protects you and your income as you grow. 

Sole trader public liability insurance is a policy that aims to protect a self-employed individual from a variety of unforeseen circumstances. Depending on the policy, this could include cover against accidents, injuries, damage to property and belongings or even theft. 

Though having public liability insurance is not a legal requirement for sole traders, it’s usually a good idea. Without proper cover, you risk putting yourself and your business at risk. If you’re reading the sole trader guides on our site, you likely care about doing things the right way. Taking out proper coverage is integral to the long-term success of a business and the costs pale in comparison to the potential damage caused if you’re uninsured.

In some cases, you might even find that potential clients require you to have a certain level of coverage, and this could be the difference between you getting a contract or not. Just like that saying about a good accountant costing you nothing, having adequate sole trader insurance will likely pay for itself. 

So, if you are self-employed or thinking about taking the jump, keep reading to learn all about sole trader liability insurance, including how to determine what sort of coverage you need and where to find the best deals. 

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Assessing your insurance needs as a sole trader

Sole trader public liability insurance is a policy that covers your business for claims such as:

  • Damage to property by your business
  • Accidental damage or injury caused by yourself or your employees, if you have any
  • Injuries caused by your business activities 

It’s natural that newcomers to the sole trader lifestyle might assume none of these issues will happen to them – but that couldn’t be further from the truth. Even if you work from home, you may still encounter risks, especially when you are out visiting clients or suppliers or operating near the general public. Without insurance to cover yourself, you’ll be left out of pocket and, in the event of injury, out of work. 

Having the right insurance in place is also an issue of your business’s reputation and longevity. It is seen as a professional standard to maintain, and you might even find that certain contracts stipulate that suppliers have insurance. Without the appropriate policy in place, you could lose out on work to your competitors.

Securing sole trader public liability insurance is a key part of risk assessment for any self-employed person; it allows you to determine your worst-case scenario and make sure you are covered in any eventuality. 

The cost of a claim to your business could be huge, and as a sole trader, you are personally liable for your business debts. So, insurance isn’t just a matter of protecting your business; it’s about keeping your finances safe, as well as protecting your assets – including your family home. Public liability insurance for sole traders is typically very affordable, and even fledgeling businesses should be able to afford to invest in suitable coverage.

With many products on the market, it’s important to choose a policy that covers exactly what you need without overpaying for elements that aren’t relevant to your business. Look closely at what the product covers, and speak to an expert if you need support. This way, you can make sure you get insurance that works for your business, both now and as your venture grows.

The spectrum of insurance: beyond public liability

Public liability isn’t the only type of insurance that’s relevant to sole traders. Depending on what you do and the associated risks, there are a few different types of insurance you might want to consider:

  • Vehicle insurance: If you use your car or van as part of your business operations then you will need to make sure your insurance covers this
  • Employers' liability: If you have any employees, it is a legal requirement to have employers’ liability insurance, even if you are a sole trader. This cover protects you from claims against injuries or accidents from your employees. 
  • Tool insurance: If you are a contractor and own your own tools, then this can provide invaluable peace of mind should your tools be stolen or damaged while on the job.
  • Professional indemnity insurance: This aims to protect you against any claims from clients or third parties as a result of negligent activities or advice given on your behalf. While not a legal requirement, you may find this is compulsory should you want to join a chartered body. 
  • Product liability insurance: If you manufacture, supply, maintain or repair products, then this insurance will cover you for risks associated with claims against faulty or damaged products, including injuries and damages. 

You may also need to consider industry-specific insurance. For example, if you are an NHS contractor, you may need to ensure your indemnity insurance meets certain criteria. Or if you drive a specific vehicle for work that is different from your typical car or van, such as a tractor, you will need specialist insurance.

Cost considerations and finding the best deals

You might be concerned about the cost of insurance, especially if you are a newly registered sole trader and have yet to make a significant profit. However, sole trader liability insurance is often very affordable, even for the smallest ventures, and you can usually choose between paying a monthly or annual premium. 

There are a few ways to ensure you have the best deal. Firstly, you can look at comparison websites and check what’s on offer to you in your current situation. You will need to look very carefully at the details, including what the policy covers and any excess payable should you make a claim.

Another option, and one that is often beneficial to busy sole traders, is to work with an experienced insurance broker. They will assess your business and lifestyle, identify risks and find a policy or multiple policies to ensure you are protected. A good broker will also contact you every year when it’s time to renew, ensuring you get the best possible deal. 

Sole trader liability insurance is a business expense, so by paying your premium from your business account, you will get tax relief when it comes to calculating your Self Assessment tax return.

Legal aspects and compulsory covers

What insurance is a legal requirement for sole traders? Is liability insurance compulsory for sole traders? Let's take a look at the legal aspects of insurance for self-employment. 

Liability insurance is not a legal requirement for sole traders, but you are likely to need it, especially if you come in contact with the public in your work. Sole trader liability insurance protects your business from claims for accidental damage or injury caused by yourself or your business activities. This offers a wide scope for coverage, so it’s important to inspect the policy details closely to ensure any insurance is suitable for your operation. 

If you have employees, even as a sole trader, employer’s liability insurance is compulsory. This protects you against injuries or accidents from your employees. There may be other legal or compulsory requirements dictated by what you do, who you work with and what industry you operate in. For example, if you are a contractor working with the NHS or local councils, you may need specific types of insurance to do your job. 

Even if insurance isn’t a legal obligation, getting coverage for your business may still be a good idea. As a sole trader, you are personally liable for losses, so even a small claim could risk putting you out of business. Sole trader liability insurance is often inexpensive, but the benefits are significant. Liability insurance premiums are also tax deductible, so make sure all policies are set up and allocated correctly in your cloud accounting tool.

Unique considerations for home-based sole traders

If you work from home, you might be reading this thinking: “I don’t interact with the public, so I don’t need liability insurance.” This really depends on the type of work you do, whether you ever have clients visit you at home, and if your contracts require a certain type of coverage,

There are a few other insurance considerations for home workers. If you are a sole trader with employees who work from home, for example, you will need to ensure your staff are aware of what the policy covers and what is the employee’s own responsibility. 

For vehicle and tool cover, you need to check whether the insurance covers these at home, or if you need to amend your existing buildings and contents insurance to protect business items. Working from home is a complex area when it comes to allocating business expenses, so speak to your accountant about what your business can pay for and how to ensure this is properly allocated in your accountant system.

Conclusion: making an informed choice

As with anything related to insurance, you need to understand what type of cover you need and to what extent. Hopefully, this guide has helped show you the different policies a sole trader may need and helped you make an informed choice.

Almost every business will benefit from sole trader liability insurance since it’s one of the most important types of coverage for self-employed people. Having cover is especially important if you work with and/or amongst the public. 

While paying an insurance premium may seem like a cost you don’t need right now, it’s always better to be safe than sorry. Even a small claim could put your business at risk or even your own personal assets. Better yet, business insurance premiums are classed as allowable expenses, so you can subtract payments from your tax liability.

If you’re considering business insurance, remember to track payments and file receipts to stay on top of your accounts. Use CrunchONE to track all of your business expenses, including insurance, and ensure you meet all HMRC expectations when it’s time to file your self-assessment. Interested? Take a free trial today.

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Updated on
January 30, 2024

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