What business insurance do I need as a sole trader?

What are the main types of business insurance for a sole trader and what if I’m working from home?

Setting out on your own as a sole trader brings a degree of freedom and control. But it also brings more responsibility and risks.

And with risk comes insurance. You will need insurance to cover the cost in case anything unforeseen happens to the business: a client complaint, a faulty product, an injury to a sub-contractor.

Despite these risks, a 2019 survey by contractor Qdos worryingly found that potentially 1.1 million sole traders in the UK operate with no insurance at all.

The type of insurance you need ultimately depends on the sector and business you have, but six to consider are:

#1 – Employer’s liability insurance

If you’re hiring someone, or even sub-contracting work out, you will need employer’s liability insurance as a legal requirement.

Your policy must cover the business for at least £5m from a recognised insurer (you can check this on the FCA register) and you must display the certificate.

#2 – Public liability insurance

The most common type of business insurance. This offsets the cost if a member of the public makes a claim and your business is at fault.

This includes injury to a member of the public, accidental damage, legal expenses and any compensation claims.

#3 – Professional indemnity insurance

If your work results in a client losing money, because of negligent advice for example, this insurance covers any claims made against the business.

In some sectors (accountants, architects and financial advisors for example), this is mandatory.

>See also: Do sole traders need professional indemnity insurance?

#4 – Business car insurance

If you rely on a personal car for business purposes, heavily or otherwise, you will need the vehicle insured for the eventuality of being involved in an accident. This is compulsory.

Keep a close eye on how many miles are for business purposes and how many are for social or personal reasons, as this will affect the premium.

#5 – Product liability insurance

If you’re a sole trader in manufacturing, you can be covered for any claims made against a product which has been lost, become damaged, faulty or caused injury.

#6 – Cyber insurance

For businesses that operate mainly online, cyber insurance provides cover in the event of a cyber-attack. Research found small businesses are becoming more prone to these types of attacks, with 39 per cent of small businesses reporting cybersecurity breaches in the last 12 months. Phishing is the biggest threat, affecting 83 per cent of those businesses.

Despite this, many small businesses still aren’t prepared for cyber-attacks.

>See also: How to choose a cybersecurity solution for your small business

What if I run my business from home?

Your business could be entirely home based. If so, it is best to talk to your home insurer to ensure all assets and business activities are covered.

“Never assume that home insurance will provide you for working from home,” says Oliver Leyens, director at Heath Crawford. “If the business is clerical, most insurers are fine with this, but if your work is more manual, then a more specialist working from home policy could be required over and above the standard home insurance.

“Company owned assets can’t be covered under a standard home insurance policy.”

Other types of business insurance to consider:

Sole traders are often have a specialism which ideally requires some extra insurance above the standard types described above. A photographer, for instance, might therefore require bespoke equipment insurance for cameras, lighting etc. Someone involved with exporting or with clients from politically risky countries might consider trade credit insurance. Alternatively, your specialism could mean you work with heights, depths or extreme temperatures. These are factors to talk through with a broker as there will be specific insurance products for each.

In fact, insurance brokers have products that cover an almost infinite number of scenarios. Here are some examples: – You can be covered in the event you’re called up for jury service, in which case you can claim up to £1,000 in lost revenue; – The cost of any negative PR if you work in a sector where your image is the focus of your trade – If there is any interruption to business which could stop trade for a period of time (Covid was a prime example).

The following aspects can determine what you need more specifically:

  • Number of employees
  • Business assets/contents and where these are kept
  • Turnover
  • Business sector
  • Location
  • Relationship with members of the public
  • Business premises

Is there a one-size-fits-all business insurance product?

The good news is you don’t need to take out individual policies for all the above. Providers will allow you to select the ones that are relevant to your business and offer a quote to encompass them all. See our article on commercial combined insurance for more detail on how this cover can be arranged.

More on business insurance

If you’re interested in getting a Combined Commercial Insurance quote, SmallBusiness.co.uk can help you find the best provider for your needs here.

Business insurance everything you need to know – Which insurance do you actually need and which is merely optional?

What is professional indemnity insurance? – Who needs it and and what does it cover?

Dom Walbanke

Jaeden Harber

Dom Walbanke is a feature writer for Growth Business and Small Business, focused on matters concerning start-ups and scale-ups. He has also been published in the Independent, FourFourTwo magazine and various...