As a sole trader, you’re operating under your name, which is a huge responsibility. Suppose a client or another business, for example, files a complaint due to damages. In that case, you will most likely be held accountable. Such an occurrence comes with significant expenses that you may not be prepared to pay out of pocket. So, if it happens, where do you turn to? Fortunately, you can protect your name, your business, and your assets with sole trader insurance.
But sole trader insurance is not always an easy topic to understand, particularly if you’re just starting in the business arena. That’s why many sole traders in Australia make the mistake of skipping insurance, thinking it’s yet another expense with no real benefits.
In this blog post, you will understand why you need insurance as a sole trader and how to pick the right cover for you.
The Importance of Insurance for Sole Traders
First, let’s have a quick refresher. By definition, a sole trader is a person who owns and operates a business under their name. It’s an immense difference from companies that come as separate entities with unique protections. In other words, sole traders are solely responsible for any damage or issue arising from their business, products, or services.
So, where does insurance come into play? Let’s have an example.
Suppose you are a photographer running your own photography business. A client books a photo shoot with you. Everything is set – what can go wrong? Whilst shooting, however, your camera or memory card stops working. Perhaps your camera bag gets tossed off a cliff for whatever reason. It’s not your fault it happened, but the sad thing is that your client may not care because you wasted their time and money.
Unless the client is forgiving, you could be liable for all the costs involved, so you would need to reimburse the expenses of your client. If you don’t have insurance, it means you will have to pay out of pocket.
The point is, anything can happen, whether you are a photographer, a web developer working in your home office, or a carpenter. You need insurance to get the protection you need for hefty expenses you may not be prepared for. In many cases, potential clients will require you to present insurance before you start working with them.
What Type of Insurance Do You Need as a Sole Trader?
You have a few insurance options as you work as a sole trader. However, these choices can make your search difficult because you don’t always know what you genuinely need. To make things more straightforward for you, All Trades Cover will outline your options below.
Please note that some insurance will be mandatory, so you may want to consult a business advisor for guidance.
1. Public Liability Insurance
Sole traders should have Public Liability Insurance to cover any damage done to a third-party person or property. A bodily injury is a tricky matter to face, especially if caused by your provided services. With Public Liability, it’s easier to take care of the issue. Plus, it covers accidents due to something as simple as another person, such as a client tripping over wires or cables. Sustaining an injury means that you have to deal with hospital bills, which you can quickly pay with your sole trader public liability insurance.
2. Third-Party Personal Injury Insurance
Sole traders who operate a vehicle may need Third-Party Personal Injury Insurance. With this type of insurance, you will be covered for any costs incurred due to injury or death caused by the motor vehicle you use on the job. This insurance is often included in your vehicle registration fee, so be sure to check for it. You should purchase it immediately if it is excluded, specifically if you drive as part of your job responsibilities.
3. Worker’s Compensation Insurance
As a sole trader, you may not require this type of insurance unless you hire freelancers or subcontractors to help you out in your business. This worker’s compensation insurance will help you provide compensation if the people you temporarily hire get injured or injure someone else.
4. Professional Indemnity Insurance
Not every sole trader requires this insurance. If you offer advice or similar professional services, be sure that you are covered adequately. It’s no longer enough to have a disclaimer on your website or contract. The other party can make claims of negligence, omissions, or errors, which can harm not just your bank but your reputation, as well.
5. Tools or Gear and Equipment Insurance
If you’re a creative professional, you most likely use tools or gear that costs thousands of dollars. It’s not easy to replace those tools if you are on a tight budget. Instead of getting a loan that can end in more enormous debts, insure your equipment. This insurance will protect you if you lose or damage your tools or are stolen from your shed.
6. Loss of Income Insurance
If an unfortunate event occurs and you cannot work, you can turn to Loss of Income Insurance. It’s a type of personal insurance that every sole trader can benefit from. Since you’re the only one running your business, you don’t have anyone to turn to. If your business is your single source of income, you should get Loss of Income Insurance to protect you if you fall ill or become injured.
Let All Trades Cover help you find the most suitable sole trader insurance for you. Reach out to us to get more information.