It might be the simplest business structure, but you still need to protect yourself with sole trader insurance.
Here at PATCH we love small business, and sole traders are a huge part of that.
Whatever business you are building, we’d love to help protect it with quality insurance. Call us on 1800 811 888 or click the button below for a quote.
Setting up as a sole trader is the easiest way to start a business in Australia. Essentially you just need an ABN and a business name, and off you go!
In all the excitement of setting up it can be easy to forget one very important thing – business insurance.
Even if your business is relatively small, every business has potential risks, and as a sole trader you’re actually exposed to more potential risk due to your business structure.
In this guide we’ll look at why business insurance is so important for a sole trader, and some of the different insurance types available to you.
What is sole trader insurance?
The term “sole trader insurance” can refer to a whole host of different insurance types.
In fact, there is no specific type of policy called sole trader insurance…
Some of the common policies that would fall into this category include the following:
- Public liability insurance
- Professional indemnity insurance
- General property insurance
- Tool insurance
- Personal accident insurance
Some of these policies can be packaged up together, whilst others would be kept separate.
Either way, by using a business insurance broker like Patch you can still have a single point of contact for all of your policies, and even pay them on a single monthly payment.
Later in this guide we’ll go into some of the major types of sole trader insurance in more details.
We strongly recommend speaking with one of our specialists to get a true understanding of what you need.
You can contact our team on 1800 811 888 or complete our online quote request.
Why is sole trader insurance important?
All businesses have risks, and all businesses can protect themselves against those risks with insurance.
What makes it especially important for sole traders is the way that your business structure works.
Whilst it is the easiest and cheapest way to start a micro or small business in Australia, it also provides the least financial protection to the business owners.
With a company structure – which is commonly identified by having Pty Ltd on the end of the name – the business and you are separate entities.
This means that liabilities taken on by the company generally stay within the company, which keeps your personal assets safe.
There are some exceptions to this rule, such as if you have acted outside of the law, but you should speak with your accountant for more information about this.
Getting back to sole traders – you don’t have that protection, and instead both you and your business are a single entity.
What does this actually mean, and how can it affect you in the event of a claim?
Let’s say your business activities cause $100,000 worth of damage to your client’s premises.
As a company, your company is liable for that debt. If the company didn’t have insurance, and couldn’t afford the debt, your company would go bankrupt but your personal assets would generally be safe.
But as a sole trader you and the business are one entity. If you didn’t have insurance and couldn’t afford the debt, then you would be heading for personal bankruptcy.
All of this means that insurance can be even more important for a sole trader than any other business type!
Now we’ll take a closer look at the different types of sole trader insurance.
Public liability insurance
This is the most common form of business insurance held by a sole trader.
Public liability insurance covers you in the event that your business activities cause property damage or personal injury to a third party.
An example could be a cleaner who accidentally uses the wrong chemical whilst cleaning a floor, which results in thousands of dollars’ worth of damage to the floor.
The cleaner would be responsible for those costs, but if they have the right insurance in place, the costs would be covered by the policy.
Some sole traders, especially those at the micro business or “side hustle” end of the spectrum, don’t think they need public liability insurance as their business is so small.
But it doesn’t matter how small your business is, one small mistake could lead to claim worth hundreds of thousands (or even millions) of dollars if someone is seriously injured or killed.
Sticking with the cleaner example, let’s say you were cleaning a tiled floor and a child came running in, slipped over and hit their head badly enough to suffer a serious brain injury.
If you hadn’t placed any warning signs or made some attempt to keep your work area safe, you could potentially be up for a claim worth millions of dollars to cover that child’s care and lost earnings for the rest of their life…
That’s a very extreme example, but it shows that even a very small business could end up with a very large liability.
The good news is that the cost of public liability insurance for a sole trader is often very low.
For a typical sole trader type of business, the minimum amount of public liability cover will generally cost around $500.
The cost will be higher for businesses that are considered high risk, but for common sole traders such as handymen and cleaners etc, the cost is very low.
Running a business as a sole trader without public liability insurance is a huge risk and one that is not worth.
General property insurance
Depending on the type of business you are running, you may have equipment that is used for the running of a business.
For a tradie this would be their tools, or for a consultant it would be your laptop and other electronic devices.
These assets can quickly add up to thousands of dollars, and often they are relatively small and valuable items, which makes them the perfect target for thieves.
General property insurance can be added to your public liability insurance to cover your portable business assets from a range of risks including fire and theft.
On the theft side, cover is generally limited to theft following forced or violent entry. That simply means that the items must have been secured in a vehicle or household etc, and not just left in the open.
General property insurance will often cost just a few hundred dollars for the minimum $3,000 in coverage.
Tool insurance
You’ll often hear the term tool insurance, but it’s just another name for general property insurance.
Although we might talk about tool insurance – especially when dealing with a tradie – the actual policy will be general property insurance.
Professional indemnity insurance
If you’re working as a consultant, or any profession where you are providing advice in return for a fee, you need to consider professional indemnity insurance.
Often this form of insurance is mandatory for professions such as accountants, lawyers and insurance brokers, but it’s also very important for many other businesses.
This form of insurance will cover you in the event that your advice is deemed to be negligent and results in a third party suffering a loss.
An example could be a financial adviser who provides inappropriate advice to a client, which results in that client suffering a financial loss.
You would be responsible for that loss, but your professional indemnity insurance would cover the costs assuming that you had the right cover in place.
Along with covering advice, professional indemnity insurance can be vital for sole traders who provide written reports to clients.
If the information in your report is incorrect, and your client suffers a loss because of your mistake, you could be liable for the costs involved.
No matter how small your business might be, even if you’re just doing some consulting on the side, it’s worth looking at professional indemnity insurance to protect yourself.
Other sole trader insurance types
There are many more forms of business insurance for sole traders, and it all depends on the type of business as to which policies you might need.
An obvious one is vehicle insurance. If you’re using a commercial vehicle in your business, such as a ute, van or truck, you need to ensure it’s properly insured for your business activities.
Just having a basic policy though an insurance company such as NRMA or AAMI might not be enough, especially if you haven’t told them that you’re using the vehicle for business.
If you’re renting a small retail shop or office you’ll need to have appropriate insurance in place. For renters this generally includes public liability insurance and glass insurance.
If you own the premises you’ll need to ensure the building is insured and the appropriate business activities have been disclosed to the broker or insurance company.
More information
The best option for any sole trader is to speak with a qualified insurance broker.
Here at PATCH we have a team of experienced and qualified insurance brokers who can talk to you about your business and many recommendations.
Not only that, but they’ll also be able to obtain quotes from multiple insurance companies and compare them to ensure you’re getting a great deal.
We are passionate about protecting the businesses that sole traders put so much time and effort into. Don’t risk your business (and your own assets) by operating without the right cover in place.
Contact us today to learn more about sole trader insurance or to get the ball rolling on some quotes. Click below to get started or call us on 1800 811 888.
