Self Employed? The Ultimate Guide to Insurance for Sole Traders

Self Employed? The Ultimate Guide to Insurance for Sole Traders

Inexpensive, simple to set up, and easy to maintain, operating as a sole trader is certainly an easy way for you to start doing business and growing your business.

The key insurances you should consider are Public Liability, Plant & Equipment, Personal Accident, and Worker’s Compensation if you hire people or contractors regularly. You should also consider Professional Indemnity or IT Liability if you advise people.

While its name is relatively self-explanatory, here’s a quick refresher:

A sole trader is someone who owns and operates a business in their own name. Unlike companies, which are separate entities with different responsibilities and protections, sole traders own all the assets and income. Still, they are also personally responsible for any debts or damages that arise from their businesses.

Although speaking to an accountant is always a good idea, setting yourself up as a sole trader is a relatively inexpensive and straightforward process as acquiring an ABN is free and registering a business name (if applicable) is only $37 per year, and you have complete control over the management and direction of your business.

In December of 2020, the Small Business Count from the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) estimated 1,491,973 sole traders in Australia. Small businesses continue to grow, with the number of businesses with between one to four employees increasing by 15.2% between 2020 and 2021.

Although you’re in the business to make profits and run your own show, it’s important to remember that there are substantial risks to consider and manage related to operating your own business as a sole trader. As a trade-off between the simplicity of being a sole trader, you are also liable for financial commitments and debts, including tax debts. There is no division between business or personal assets, and the assets and your business should be protected.

Having insurance, and more importantly, the right insurance, is the best way to protect you and your business against personal injury when you’re working, loss of expensive equipment and legal action related to the business.

These all can leave you in a great financial dilemma and even close down the business.

So, which insurances ones are necessary to start as a sole trader?

Self Employed? The Ultimate Guide to Insurance for Sole Traders
Sole Trader Insurance Types

There are many different insurance covers available for sole traders, which fall under the general ‘business insurance’ category.

The key insurances you should consider are Public Liability, Plant & Equipment, Personal Accident, Worker’s Compensation, Professional Indemnity and IT Liability.

Below is a summary of these insurances.

Public liability insurance

This insurance covers you and your business from legal action related to people being injured or property being damaged. It may also be required by companies that you deal with or be legally required in your State or Territory. For example, this type of insurance is compulsory for builders and plumbers, and without it, you may not be able to get a licence or operate.

An example of how this insurance works is if you scratch a customer’s car when cleaning or someone trips over your work or tools, the insurance will deal with the person whose property is damaged or injured. The insurer will appoint lawyers if needed and pay any amounts you are legally liable for.

Professional indemnity insurance

Like public liability insurance, this cover’s importance is often unclear and heavily depends on the type of business you are operating.

This insurance covers you and your business if a client says that they lost money acting on your advice. So, it covers financial loss, whereas public liability covers you and your business against personal injury or property damage claims.

Professional indemnity can cover IT professionals, bookkeepers and allied health for defamation, intellectual property infringement and breach of duty.

Self Employed? The Ultimate Guide to Insurance for Sole Traders


Tools, plant & equipment

This insurance covers tools and equipment on the site, in lockups/storage or your vehicle. It covers accidental loss or damage, including if the tools are stolen. Tools and equipment can be expensive to replace and delay work on your job without them.

Unfortunately, tool theft in Australia is rampant, and for tradespeople, tools are a crucial resource. Tool insurance can cover sole traders for a range of risks, including fire damage, vehicle collision, and theft following forced or violent entry, helping with financial recovery.

Larger items, such as hired in or own plant & equipment, can be insured under specialised wordings designed especially for plumbers, carpenters, and other contractors.

Commercial Motor Vehicle insurance

This insurance covers you for loss or damage to your vehicle and damage to third party property. This is not covered by Compulsory Third Party (CTP) Insurance, a different compulsory insurance that only covers injury to people, not damages to other people’s cars or property.

Commercial motor vehicle insurance has two main options. Comprehensive cover covers damage to your vehicle, other people’s cars or property, or limited third party property damage (TPPD). You can also add extra cover, such as hire car costs following an accident or theft, and any loss or extras or modifications can also be insured.

Many sole traders run their business out of their vehicles or get to and from customers and job sites using their cars or utes. So, it’s important to have the right commercial motor insurance for your business.

Consider if something were to happen to the vehicle; it’s a large financial investment that would be hard to replace is stolen or written off. Having insurance for accidents with other cars or property is also important; running into the back of a Porsche could be expensive to pay without insurance.

Personal accident and worker’s compensation insurance

Personal accident insurance covers your weekly income to pay bills and expenses, if you get injured on the way to or from work or work. It also pays a lump sum if you’re permanently injured or even killed. As you are working for yourself, you must protect yourself and the people that depend on you.

Worker’s compensation is for your employees and some contractors. As a self-employed person, you generally can’t get worker’s compensation for yourself. Different states and territories have different rules about who is an employee versus a contractor, so it is important to check to make sure you have the insurance in place, as worker’s compensation is compulsory.

Self Employed? The Ultimate Guide to Insurance for Sole Traders
In Summary

There are so many benefits of being a sole trader business. However, it is important to consider and manage the risks particular to you and your industry. The right insurance is essential in protecting you and your business.

If you are looking for more information and advice about insurance options for sole traders, contact Insurance Advisernet today. We specialise in helping businesses of all shapes and sizes to find the right insurance cover and risk management advice.

Important Information

This communication including any web-links or attachments is for information purposes only. It is not a recommendation or opinion, your personal or individual objectives, financial situation or needs have not been taken into account. This communication is not intended to constitute personal advice.

We strongly recommend that you consider the suitability of this information, in respect of your own personal objectives, financial situation and needs before acting on it. This document is also not a Product Disclosure Statement (PDS) or a policy wording, nor is it a summary of a particular product’s features or terms of any insurance product. If you are interested in discussing this information or acquiring an insurance product, you should contact your insurance adviser to obtain and carefully consider any relevant PDS or policy wording before deciding whether to purchase any insurance product.

Liability Insurance

Liability Insurance

Despite the very best of intentions, accidents can still happen in any business. Public and Product Liability Insurance  protects you against claims for personal injury or damage to a third party.

Professional Indemnity Insurance

Professional Indemnity Insurance

Professional Indemnity (PI) Insurance isn’t just limited to typical ‘professions’ such as accountants, engineers, lawyers, doctors and architects. Essentially, anybody providing advice or consultancy services for a fee has an exposure that needs to be considered.

SME Business Insurance

SME Business Insurance

Business Insurance is used by many businesses, but it’s best suited to SME-type operators.

Find your local Insurance Adviser

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