This article was first published here in May 2022.
Working for yourself can be freeing, but all the paperwork falls onto you - including insurance. You’re the expert at what you do, but you didn’t go into business to become an insurance specialist. With sole traders working in a variety of business sectors, your business is unique, and so are your insurance needs.
Our insurance specialists at FSB Insurance Service have covered the basics of insurance for sole traders, including why it’s so important, the policies you need to consider, your legal obligations and the tailored insurance policies available for different sectors.
Why is insurance so important as a sole trader?
Insurance protects your business and gives you and your customers peace of mind, as well as offering a financial safety net in certain adverse situations, should you be liable for any costs. It’s also a key component of your Business Continuity Plan, allowing you to run your business smoothly if something goes wrong.
Even if you’ve been self-employed for years, checking that you’ve got the right insurance for your business is important. Your business might have evolved over the years and your policy needs a refresh, and there may be some areas of your business not covered under standard policy wordings. Should you ever need to make a claim on your insurance, the last thing you want is to find out you’re not actually covered for that incident when the worst happens.
What insurance do I need?
The business insurance you require depends on several factors, including but not limited to:
- the type of work you do
- where you work
- your business assets
- your turnover
- if you have any employees
Let’s look at some of the most common types of insurance covers for sole traders.
Public Liability insurance
One of the most common types of business insurance, public liability covers your responsibility to third parties. It protects you from suffering financially if a claim is made against you or your business in respect of loss or damage to third party property or people because of your negligent acts.
Professional Indemnity insurance
If a mistake you make in your work whilst advising a client causes a financial loss to a client, Professional Indemnity will help you cover any costs or claims made against you.
Professional Indemnity won’t cover you doing a bad job, or ‘faulty workmanship’. If you’re installing a boiler that isn’t fitted properly and causes a gas leak, this will not be covered by professional indemnity insurance.
Product Liability insurance
This covers liability for loss, damage or injury caused by a product you have manufactured, installed, supplied, or maintained. If you handle products and or repairs this is important to make sure that you are covered in case a product handled by you causes loss, damage or injury.
Employer’s Liability insurance
Many sole traders work alone, but that doesn’t mean you won’t ever need to hire someone, whether for the long or short term. If you do, you’ll need to invest in Employer’s Liability insurance as a legal requirement, even if you’re only hiring one person or using labour-only subcontractors. If you employ any staff then you are legally required to hold an Employer’s Liability policy.
Your staff are your responsibility and so any loss, damage or injury could result in them making a claim against you. Employer’s Liability covers your legal responsibility for your employees, and in the event of a claim, Employer’s Liability will cover the cost of legal expenses (depending on your policy) and the claim amount.
I’m running my business from home. Do I need insurance?
If you’re operating your business from your home office, you’ll want to discuss this with your home insurer to ensure you’ve got the right cover for business assets and activities. It’s still beneficial to take out policies like Professional Indemnity insurance to protect yourself against any liabilities. If you’re unsure, speak to an insurance expert from FSB Insurance Service who can advise you based on your circumstances.
Specialist insurance advice for your sector
Depending on the work you do, there may be additional insurance that you may wish to consider or that is even a legal requirement.
Are you a tradesperson?
The work carried out by Tradespeople can be varied, so it’s important that you be specific about what you do when you speak with your broker. Your broker will need to know whether you work with heat, or work to specific heights (and depths!) when helping you find a policy.
If you have subcontractors, you’ll need to make sure they have the right insurance, and in some instances, this will be your responsibility.
Are you a freelancer or contractor?
Whether you’re a full-time contractor or picking up freelance projects as part of your side hustle, it’s important to be covered. Many contractors and consultants will find that they have contractual PI limits when entering contracts with organisations, especially government or councils.
What else do I need to consider?
There are countless scenarios that could crop up in the day-to-day running of your business and put a spanner in the works. Here are just a few examples:
Jury service payments
If you’re selected for jury service, not only can the time spent at court have a big impact on the day-to-day running of your small business, but it can also result in a loss of earnings. Find out how you can claim for loss of earnings.
HMRC tax enquiry protection
Filling our self-assessments is part and parcel of being self-employed. Many sole traders are worried about a letter from HMRC in the post, not to mention the time and costs involved with the process.
FSB members have tax investigation protection of up to £100,000 included with their membership, alongside support and representation from our tax experts.
Crisis communication insurance
If you’re facing negative publicity or a PR crisis, dealing with it on your own can be daunting. With FSB membership, FSB Legal Protection Scheme offers essential cover to help you handle a crisis.
FSB Insurance Service Limited is authorised and regulated by the Financial Conduct Authority (FCA Registration No: 788654 ) Registered Office: 20 Fenchurch Street, London, United Kingdom, EC3M 3AZ. Company Number: 10831430
FSB Member Services Ltd are registered with the Financial Conduct Authority (FRN 418025) as an Introducer Appointed Representative of FSB Insurance Service Ltd (FCA Registration No: 788654)