In Australia, a sole trader refers to a self-employed person who works on their own, or runs a small business employing 20 people or less, under a sole trader legal structure.
While being a sole trader comes with rewards such as “being your own boss” and relative freedom, you are also responsible for dealing with the risks. If things go wrong with your business activities, you may be liable to pay costs and damages. Luckily insurance is here to help you.
Generally, a sole trader needs insurance for two key reasons. The main one is to cover themselves against business risks, and the second is because some of their clients or industry require them to.
However, many sole traders scratch their heads trying to figure out what kind of insurance they require. Going through the options can be complicated if you are a new sole trader.
Don’t worry! Here we have rounded up key insurances for a sole trader.
Public Liability Insurance:
Whether you are an electrician, carpenter or a plumber, your occupation as a sole trader has risks. For example, you can accidently damage tiles while installing pipes. of your power tool can demolish an expensive piece of furniture. Or what if a tool from the toolbox falls from height onto your client and injures them? Or a visitor slips over the wet floor and injures themselves?
In this scenario, you can be held liable for costs and damages caused by your business activities. Even if you choose to contest the liability lawsuit, you may have to fork out a lot of money in defense costs.
That is why you need public liability insurance. It may provide you with financial cover against costs and damages arising from injuries or damages caused by your business operations. In laymen’s terms, with public liability insurance, you may only need to pay very little out of your own pocket- the excess.
Professional Indemnity Insurance:
While public liability cover protects against third party injury or property damage, professional indemnity is designed for professional sole trades that provide advice for a fee.
Also, termed as Errors and Omissions Cover, professional indemnity insurance can protect the business against loss or damages caused by their breach of duty or negligence in the course of their services.
For example, an accountant can be sued for his incorrect tax advice that leads the clients to a loss or government fine. Or a client can sue you if his data is lost or damaged when new software is installed by an IT consultant.
Professional indemnity insurance is generally meant for business providing advice or services to their customers for a fee.
One of your most important tools is damaged, lost or stolen. You are short on funds as you are waiting for the builder to pay you what they owe you, and you must deliver the project. What do you do…?
Simply put, you cannot work without your tools.
While your tools can be damaged, stolen or lost despite your best care, you will need to find the money to replace them out of your own funds if you don’t have tool insurance.
Commercial Vehicle Insurance:
If you rely on a vehicle in your work as a sole trader, accidents, damage or theft can bring your business to halt, costing you money and time.
Enter commercial vehicle insurance.
Also termed as business vehicle insurance, it can cover commercial vehicles such as utes, vans, trucks, forklifts and even trailers.
A commercial motor vehicle insurance policy may offer financial protection against loss, damage or theft, towing costs, fire, emergency repairs and legal liability associated with vehicles.
Things to Consider When Choosing Insurance for a Sole Trader
When reviewing insurance cover for your sole trader business activities, there are a number of factors to consider.
Assess Your Risks:
Risk varies based on your business. A painter generally has less risk than an electrician. However, you still need to consider your worst-case scenario and choose cover accordingly.
Decide on the Level of Cover:
An excessively expensive business insurance policy may stress your finances, while having inadequate insurance can be even more risky. In this scenario, assess your risks, talk to colleagues in your industry or a good insurance broker to choose a suitable level of cover. As a sole trader, you will generally choose between $5 million and $10 million public liability cover.; and $1 million, $2 million, $5 million professional indemnity cover.
Review it Periodically:
Review your insurance to see if it complements the progress of your business. For example, you might hire employees and purchase vehicles. Therefore, your insurance should cover the change in your business.
Ask for several quotes from 4-5 insurers and then compare them to see the differences in price and coverage. It will help you choose the right one for your needs. A good business insurance broker can help you shop around, compare cover and prices to suit your sole trader business needs.
*Important: Cover may be available subject to meeting insurers underwriting criteria. Some of the covers listed may or may not be available or may have limitations or exclusions. Cover inclusions vary significantly from insurer to insurer. DO NOT rely upon the above. Check your policy schedule carefully for inclusions and exclusions and limitations. Talk to a business insurance broker for more information.
Romit Malhotra is the brand representative of Smart Business Insurance, a leading Australian insurance broker. A big foodie, he loves to travel the world. Also, a diligent businessman, Romit likes to pen down his thoughts on related topics whenever he finds some free time.