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According to the Department for Business, Energy and Industrial Strategy, 3.1 million of the 5.5 million small businesses operating in the UK in 20221 were sole traders, making them the lifeblood of our economy.
But what is a sole trader? Well, if you’re self-employed and own your business entirely by yourself, then you’re a sole trader. You work hard to earn money and - after tax – you get to keep more of the proceeds for yourself. However, you’re also responsible for any losses your business makes.
Sole traders can often have more to lose than most. Unlike a limited company, you and your business are considered to be a single legal entity. So, if things go wrong, it’s not just your business that’s affected, but your personal finances too.
This is where sole trader public liability insurance comes in, helping to protect you and your business against claims, compensation and legal costs.
What is sole trader public liability insurance?
Public liability insurance can help cover sole traders if a claim is made against you by a client, customer or member of the public. This could be due to them getting injured or having their property damaged because of your work.
As a sole trader, you may find that public liability cover could help save you from serious costs. It can cover things like compensation claims and legal expenses that would otherwise cause you a financial loss, both personally and professionally.
Some sole traders may think their business is too small to worry about insurance. But this couldn’t be further from the truth. Small businesses often face the same risks as much larger companies, and accidents can and do happen.
Without having the right amount of public liability insurance in place, you risk the safety of your customers and your business could be financially ruined.
What does sole trader liability insurance cover?
With sole trader liability insurance, you can get cover for:
- Compensation claims – if a third party is injured or has their property damaged due to your work.
- Medical expenses – such as healthcare and transport costs if someone is injured on your worksite.
- Legal expenses – if you’re taken to court over a claim.
- Tech, tools and equipment – to help protect your business essentials from theft, loss or damage.
If you employ staff as a sole trader, even just one other person working for your business, you are legally required to have employers’ liability insurance. This essential cover offers you protection if your employees are injured or get ill due to work.
Don’t fall into the trap of thinking the worst will never happen to you. If an incident does occur, it could put significant strain on your finances.
Do I need sole trader liability insurance?
Public liability insurance isn’t a legal requirement for sole traders. But there are very few businesses that can safely operate without it. Whether you’re a florist or a plumber, you’re likely to be exposed to risks that may require public liability cover. It acts as a safety harness to help your business financially recover if an incident were to occur that results in a claim.
You may consider buying public liability cover if:
- Your clients visit your place of work, whether this is an office, business premises or you work from home.
- Your business is responsible for organising or hosting events.
- You work in areas that members of the general public can access.
- You’re looking to take on new contracts with your local council or other large organisation.
How much cover do I need?
Each business is unique, so there’s no set answer for how much public liability insurance you need as a sole trader. The level of cover you require will differ depending on many factors.
Surprisingly, how much cover you need doesn’t always relate to the size of your business. Small businesses don't always need the minimum cover level, just as bigger companies may not need the most.
To help you understand how much risk your business is exposed to, you can ask yourself the following questions:
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- Even if you’re running a small business from home, you might need public liability if clients visit you for any reason.
- The level of cover increases if you deal with more clients regularly. This is because you are more at risk of a claim being made.
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- It’s always best to check your existing contracts, and any you are trying to win. Some clients may demand a certain level of cover before they’ll agree to work with you.
- Most local authorities tend to demand that you have a minimum cover level of £5 million before they’ll pass any work your way.
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- Consider the value of your largest contract. The bigger it is, the more important the work is likely to be to your client. This means there’s more at stake if something goes wrong.
- The cover you need will vary depending on what type of work you do and the amount of compensation that could be claimed if something goes wrong.
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- Nobody expects bad things to happen to them, but you need to consider and prepare for your worst-case scenario.
- Remember being underinsured can almost be as bad as having no insurance at all. Opting for the lowest level of cover to cut costs is never the ideal choice.
Still unsure about your level of cover? Learn more about public liability insurance.
How much does it cost?
It’s important to weigh up the cost of buying public liability insurance against the cost of a claim if you didn’t have cover in place. Paying an insurance premium tends to work out much cheaper than the cost of putting something right yourself. Especially as a sole trader, when you’ll usually be the one fronting the bill.
As a guide, the factors that may influence your premium are:
- The nature of your business. This has the biggest impact on your premium. The more risks your business is exposed to, the more expensive your public liability insurance will be.
- Your insurance provider. Insurance providers use data to decide the amount customers are to be charged for certain risks. This means that premiums can vary from one insurer to another depending on their risk appetite.
- Additional cover. Your business is often exposed to more risks than public liability can cover, so you might need additional insurance. Most insurers let you add extras to your policy, which generally increases your premium.
This is not an exhaustive list and there may be other factors that influence your insurance premium.
Insurance solutions from Gallagher
At Lloyds Bank, we work with Arthur J. Gallagher Insurance Brokers Limited to source quotes from a range of insurers.
What other types of sole trader business insurance might you need?
It’s rare that your business will need just one type of insurance cover to protect it against all risks. This is why many insurers sell insurance packages, such as tradesman insurance, which includes all the cover your business may need.
These can be tailored to meet the needs of your business as they’re made up of core and optional covers. But they make buying insurance quicker and easier, with just one renewal date to remember.
Other types of insurance you may need as a sole trader include:
Frequently asked questions
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No, public liability insurance does not cover your employees. If you employ staff at your business, you may legally require employers’ liability insurance. You can add this on as additional cover to your sole trader business insurance policy.
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Yes, if someone wants to make a claim against a sole trader for injury, damage or loss, they can sue them directly. As a sole trader, you are personally liable for the activities of your business.
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There’s little difference between self-employed and sole traders. If you’re self-employed, it means you don’t work for another employer or pay your taxes through PAYE. A sole trader is simply the type of business structure you work under. If you own a limited company, you may not be classed as self-employed.
Getting the sole trader insurance that’s right for you
If you’re a sole trader, having the appropriate insurance can make a significant difference.
Other products
Business insurance
Protect your business against unforeseen circumstances which could cause financial loss, such as property damage and liability claims.
Public liability insurance
Covers the cost of claims and legal fees if a third party gets injured or has their property damaged. It can be an ideal choice for tradespeople and those who are self-employed.
Professional indemnity insurance
Covers you if a client makes a claim on the service or advice your business has provided to them. This may be due to financial loss or reputational damage.
Insurance covers are subject to the individual terms, conditions and exclusions of the insurer providing them. Always review the policy documentation supplied during the quote process to make sure you have the cover you need.