Sole Trader and Self-Employed Insurance Explained

As someone who is self-employed or a sole trader, the last thing you want to deal with is the stress of a claim made against you or your business. However, none of us can control the future, which is why it is so important to consider sole trader and self-employed insurance. Read on to find out more

Connor Campbell Published on 26 November 2021.
Sole Trader and Self-Employed Insurance Explained

Whether you’re a sole trader, a freelancer or self-employed, there are a number of situations where business insurance can come to the rescue for single-person operations.

To think you don’t need insurance because you’re a sole trader, or self-employed is to leave yourself open to potential trouble down the road.

Regardless of your industry, human error is hard to avoid. Accidents, unfortunately, do happen. But that doesn’t mean you have to bear the full financial burden when they do.

Sole trader insurance, or self-employed insurance, acts as a safety net, covering your legal fees and compensation costs if something goes wrong.

Not every policy that falls under that banner will apply to your business, so be sure to read our guide to find out which types of self-employed insurance you should be looking out for.

» MORE: Going self-employed – what you need to know

Do you need employers’ liability insurance if you are self-employed?

If you do not have any employees, you do not need employers’ liability insurance. It’s as simple as that.

However, the moment you hire just one employee, it is a legal requirement in the UK to take out an employers’ liability insurance policy with coverage of at least £5 million from an authorised insurer. You may not need it if you run a business that only employs members of your own family or are employing someone who is based abroad.

So, for example, if you are a freelance writer, or an independent plumber working on your own, you would not need to take out this kind of policy.

On the other hand, if you are an electrician with a paid apprentice, or a food truck owner with a team of cooks, you would need employers’ liability insurance.

» COMPARE: Employers’ liability insurance

Types of sole trader insurance

Even if you are a sole trader working entirely on your own, there are numerous types of business insurance that you should consider in order to protect yourself from a series of worst-case scenarios.

» COMPARE: Business insurance with NerdWallet

Sole trader public liability insurance

Public liability insurance for sole traders covers the legal costs and compensation claims for injuries or property damage caused by your business activities. With this kind of insurance, the claims would typically be made by a client, visitor to your workplace, or a member of the general public.

For example, if you are a plumber, and a pipe you installed bursts due to it not being fitted properly, public liability insurance would cover you if you were sued for negligence.

It can even be helpful if you are a live performer, such as a DJ. Say the venue is damaged during your performance, or someone is injured in an accident. A public liability insurance policy would prevent you from having to pay any compensation costs out of your own pocket.

» COMPARE: Public liability insurance for sole traders

Sole trader product liability insurance

If you operate a bakery business at weekend food markets, or make money from selling your creations on online marketplaces such as Etsy, you might want to look into product liability insurance for sole traders.

An honest mistake can still lead to claims against your business if an item or product you sell causes injury or property damage. And it doesn’t matter whether you were the manufacturer of the item or not and even includes items you give away for free.

There are a variety of situations in which product liability insurance can come to the rescue of a sole trader dealing in goods.

This could be someone getting food poisoning from a batch of cookies, an allergic reaction caused by a mislabelled product, or a cut hand on a jagged piece of packaging, for example.

Sole trader professional indemnity insurance

To a certain extent, you may not have a choice when it comes to professional indemnity insurance.

Although it is not a legal necessity, many institutions, associations and regulatory bodies you may wish to join as a sole trader require professional indemnity insurance as a condition of your membership. Sometimes it may even be your clients insisting you have this type of policy before they hire you.

Professional indemnity insurance covers a wide range of sectors, from those providing advice – such as accountants, consultants and solicitors – to jobs involving specifications, such as architects, interior designers and web developers or designers.

It would typically be applied in situations where, as a result of your actions or recommendations, you have caused a financial loss for a client, or if your services have been deemed inadequate.

For example, if in the process of designing a website you accidentally use images that are not your intellectual property, professional indemnity insurance would cover your costs if you are sued.

Similarly, if you make an error as a freelance accountant, this kind of policy would take care of your legal fees and compensation costs.

» COMPARE: Professional indemnity insurance

Business car insurance

While you must have car insurance as standard to drive in the UK, you will need to take out a specific business car insurance policy if your job involves you doing more than just commuting to and from your workplace.

For example, this could be a builder driving to multiple sites, a salesperson going from client to client, or even running work errands during the day.

Of course, there are also jobs where a vehicle is a primary part of your work, for example if you drive a van or a taxi. These would need their own commercial car insurance policies.

Self-employed courier insurance

As a self-employed courier delivering food or goods for a living, there are two main forms of insurance to consider.

The first is some form of specialist vehicle courier insurance to cover you if you have an accident while driving. Depending on what you are using to make deliveries, this could be courier van insurance, courier car insurance, or delivery rider insurance for mopeds, scooters and motorcycles.

The second is goods in transit insurance. This will cover the cost of replacing the goods you are delivering if they are lost, stolen or damaged.

» COMPARE: Courier insurance

Tool insurance

There are many professions where tools are vital to their trade, such as carpenters, builders and plumbers.

But tool insurance doesn’t only provide cover for the accidental loss, theft or damage of ‘traditional’ tools, such as wrenches, saws and screwdrivers. It also includes modern devices, such as mobile phones and laptops.

So if your work requires an item that you simply cannot do without, you should look into tool insurance.

» COMPARE: Tradesman insurance

Personal accident insurance

It isn’t only clients or members of the public who can get injured during your working day.

Dedicated personal accident insurance – separate to a life insurance policy or private healthcare insurance – can help if you were to be injured to the extent that you could no longer earn an income.

What is home business insurance?

As a sole trader, or someone who is self-employed and running their own company, there is a chance that you will be working from home.

If that is the case, then you may want to take out home business insurance. Many providers will often group together a number of different policies, such as office insurance, public liability insurance and professional indemnity insurance, under the banner of home business insurance.

You may also need to update your residential home insurance policy, to inform your insurer that you are working from home. This is especially true if you have business visitors to your property.

» MORE: Do I need business insurance?

Image source: Getty Images

About the author:

Connor is a writer and spokesperson for NerdWallet. Previously at Spreadex, his market commentary has been quoted in the likes of the BBC, The Guardian, Evening Standard, Reuters and The Independent. Read more

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