Sole Trader Public Liability Insurance UK
Working as a sole trader has many advantages, you are your own boss, you (more or less) get to make your own hours, you can decide which days to work on and which to take off, and, compared to a limited company you don’t have to worry about creating (or paying an accountant to create) company accounts, balance sheets and a lot of other paperwork.
If you would like to read more information or learn more about the pricing of business insurance, you can do so here .
VIDEO
Sole Trader Insurance Downsides
One major disadvantage of being a sole trader is unlimited liability. As the name would suggest, running a business through a limited liability company means that the company is the legal entity.
You are a director or employee for the company, but the company itself “does the work”, so if something goes wrong, it’s the company, not you, that is responsible.
That means that at worst, if something goes very wrong, your company-issued and it loses all its assets, and you have to close it down, but you, the person, are protected.
This is not the case if you’re working as a sole trader. In this case, you are your business. You, the plumber, is the same person as you, the homeowner, the parent, the individual. This means that if something goes wrong, the liability is unlimited.
All of your assets, including your personal ones can be lost if somebody sues you.
That’s why it’s essential to get insurance as a sole trader; insurance will provide a level of protection that will step in and pay if something goes wrong, as long as you have adequate cover for that risk.
Sole Trader Insurance: Public Liability Insurance
You might say to yourself, I already know what insurance is, but to understand what insurance you need we need to cover the basics of insurance as a product.
Insurance is the paid transfer of risk from a party or person who has it (in this case, you) to a party willing to take the risk in exchange for a fee.
The fee and willingness depend on the risk, so in the next section, we’ll discuss some of the risks you have as a sole trader and what kind of insurance you can buy to mitigate that risk. You should always start by thinking about what risks you have to make sure your insurance covers everything you need.
Liability Insurance for Sole Traders: Mistakes on the Job
Professional Indemnity insurance (sometimes called professional liability insurance or PI insurance) protects you against the risk of providing inadequate service to a customer and them requiring damages from you.
Professional indemnity primarily, though not exclusively, covers professional service providers. If the primary thing you sell is your expertise, you most likely need PI insurance.
When we say your expertise, we mean giving advice, preparing documents or giving any instruction to your client on how to do something. A customer might say you delivered the wrong training, were negligent when preparing work and gave incorrect advice they acted upon, which costs them money.
Examples of mistakes covered by PI insurance:
Accidentally losing sensitive files – like leaving a backpack with papers on a train.
Giving lousy advice (if not done wilfully) – like telling a customer they can claim an expense as a business expense and HMRC challenging that, meaning the customer has to pay a fine.
Accidentally leaking intellectual property – like telling a prospective client how another client solves a problem if that information is not publicly available and provides a commercial advantage.
It’s important to note that Professional Indemnity insurance covers mistakes made in good faith. If you give advice you know is wrong, or the insurance company can prove that you were grossly negligent, they might deny your claim.
What insurance you get and how much it will cost will depend on your industry, risk, and experience in the role. Insurance providers will factor these in when calculating the price of your policy, but be honest when filling in the forms, and any incorrect information might void your entire policy.
Professional indemnity usually covers both the legal costs and the sum awarded to your customer if you lose (up to the limit of your cover) if they file a suit against you.
Sole Trader Insurance: Public Liability Insurance
This type of insurance protects you against claims made by members of the public against you for damage to their property or personal injury due to your work.
While professional indemnity mainly covers you for professional mistakes or negligence, public liability covers you for physical injury or damage to goods, even if it’s not a direct result of your work.
Examples of risks mitigated by public liability insurance include:
spilling water (or otherwise damaging) your customer’s laptop or mobile device
somebody tripping or slipping in your place of business and getting injured
somebody becoming ill after buying food you sold them.
Most importantly, while professional indemnity covers you for claims made by your customers, public liability also covers claims made by any 3rd party. So if someone walks past your food stall in the market and trips over a power cable you’ve run, you’re still covered.
The amount of cover you need will depend on your business activity if you have your premises and how much interaction with the general public you have.
Public liability insurance will cover the legal costs and any claims made by customers up to your limit of cover, the same as professional indemnity insurance.
Do I need both public liability and professional indemnity insurance? Neither type of insurance is required by law, so you can choose to have none. It will depend on your circumstances.
Most insurance providers have combined cover that protects against multiple risks, but you should ask yourself the following questions:
Do you provide advice or handle customer data? If so, you should get professional indemnity cover. In most cases, customers might even require you to have cover to work for them.
Do you regularly interact with customers and members of the public as part of your business? If so, you should get public liability insurance to protect you from any accidents that might cause a claim to be made against you.
Remember, even smaller claims for both of these might run into tens of thousands of pounds, which is enough to damage the finances of most individuals severely. Also, remember that you are personally liable for these claims as a sole trader, so your personal assets are not protected in case of a lawsuit.
Sole Trader Insurance: Personal Insurance
If you’re self-employed, you can decide when you want to work and when you want to take a break, depending on your financial circumstances. If trade was good last month, you could take fewer jobs this month. Unfortunately, this flexibility has the added risk of not earning any money if, for whatever reason, you are unable to work.
If you suffer an accident and cannot take on any work for a prolonged period, personal accident insurance will replace part of your predicted revenue.
Examples of risks mitigated by personal accident insurance could be broken arms or legs (or any ill health) that would prevent you from working. Most personal accident insurance policies will also cover part or all of your medical costs, including rehabilitation. However, it’s important to note that these policies have an end date when they stop paying, so if an injury prevents you from working in your chosen profession permanently, you might need a cover that includes the risk of permanent disability.
Sole Trader Insurance: Liability Insurance
Most of the time, you’ll work alone as a sole trader, but in some cases, you might need to take on staff to help you with a job. If you employ someone (as opposed to partnering with another sole trader), you are obliged by law to have employer’s liability insurance. This applies even if the person works on a part-time basis.
This type of insurance protects you against claims brought by injured employees or who became ill because of something related to their employment with you. For example, an employee cannot claim against you if they tripped and fell while getting on the train to get to work, but they can claim against you if they tripped and fell in your office because of loose carpeting on the stairs.
The health and safety of your employees are one of your main responsibilities. Employers’ liability insurance protects you against claims when something unfortunate happens that could not be prevented. The insurance premium you pay will depend on the number of employees you have, the line of business you are in and your health and safety record. Even if your business is of a particularly high risk nature, like construction, you can get a reasonable premium if you have adequate safety measures on-site and provide the right amount of training and supervision to ensure that standards are met.
Sole Trader Insurance: Buildings and Contents Insurance
If you run your business from a trading location, you will need to get special building and contents insurance for that location. This will be tailored to the kind of equipment you have on-site, but also to the risks you want to cover against (including fire, flood, theft or other perils).
If, on the other hand, you run your own business from home, you should always check with your home insurance provider to see what you are covered for. Most domestic insurance policies exclude business activities from the cover they provide. So, while your house might be covered, if it’s broken into and your work laptop or tools are stolen, the insurance company might refuse the claim.
It’s always important to provide accurate information to your insurance company. If you declare the stolen or damaged goods as personal property and the insurance company is able to prove that they were actually used for a business service you provide, it might void your entire policy and lead to even greater losses.
If your current policy does not provide cover, you might be able to change it or get additional cover for tools and equipment.
For this type of insurance, the property itself and any risk mitigation you have implemented will have a significant impact on price. Storing your tools in a locked basement that is part of your main property, where you might have an alarm system installed, will always be more secure (and therefore cheaper) than storing them in a garden shed with a lock on it. Therefore, make sure that you have taken all reasonable steps to mitigate the risk yourself before getting insurance if you want to minimise the amount of premium you pay.
Sole Trader Insurance: Do I Need a Broker?
This will really depend on the size of your business or the complexity of your risk. Most sole traders can get combined policies for professional indemnity and public and employer liability without going through a broker. Going to the insurance company directly (or through comparison platforms) will always be cheaper than buying the same policy through a broker, as you are also paying for the broker’s time and expertise.
If you are unsure about what cover you need, though, or if you would like a more bespoke policy, you should always consult a broker to ensure you have all the covers you require. Most policies have specific wording about the kind of risks they cover and which they do not, so make sure to read them before signing and policy to confirm that you are adequately protected.
Sole Trader Insurance: To Conclude
Insurance doesn’t have to be scary, even though, as a business owner, the jargon might be daunting at first. Remember that at the end of the day, your goals and your insurance provider’s goals align. Neither party wants there to be a claim against your business, the insurance is there to protect you in case the unexpected does happen.
The covers you need will really depend on your business activity and the amount of risk you are comfortable with. If you would like to mitigate any possible risk, opt for a comprehensive policy that includes all of the covers above.
Remember that it’s always wise to look for risks you might not need cover for, which will be the best way to reduce your premiums.
Sole Trader Insurance – Other useful links about business insurance:
Benefits of using Business Analytics on websites
What is a Business Coach?
What is Unlimited Liability in Business?
Remember to Compare Your Business Costs is here to help your business every step of the way from business advice , or saving you time and money on your business purchases such as:
Ally Cox is a dedicated Copywriter and Blogger for CompareYourBusinessCosts.co.uk. In under two years, the platform achieved the esteemed accolade of ‘Website of the Year’. Since its award-winning debut, Ally has been instrumental in fostering organic growth for the website, expanding its offerings to encompass comparisons across a diverse range of over 20 products to help serve all your business needs.