Public Liability for Sole Traders: The complete guide

According to the Department for Business, Innovation & Skills, 4.3 million of the 5.7 million businesses operating in the UK are sole traders making them the lifeblood of our economy.

But, what is a sole trader? Well, if you’re self-employed and the exclusive owner of your business, then you’re a sole trader. You work hard to earn your money and you get to keep it all after you've paid tax on it. However, you're also responsible for any losses that your business makes.

You may have chosen to be a sole trader due to the simplicity of the business structure but it does mean that you 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 impacted but your personal finances too.

For this reason, business insurance is possibly more important for a sole trader than any other type of business. To help you understand the main type of cover you need, here is the complete guide to public liability.

What is Public Liability insurance?

Some sole traders think that 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 Public Liability insurance is almost always needed; whatever size business you run.

Public Liability insurance (also known as PL) may cover your legal liability to pay compensation to members of the public if they’re injured, or their property or belongings are damaged, as a result of your business.

Even if you’re the most careful of business owners; accidents can and do happen. Don’t fall into the trap of thinking the worst will never happen to you. Ignorance isn’t always bliss – it can be costly when it comes to insurance.

Public Liability is known for protecting against slips, trips and falls and so claims can be significant. As well as covering the cost of compensating the loss of income and medical expenses for the injured party, the legal fees associated with defending the claim must be paid.

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.

Do you need it?

As a sole trader, you may have to pay compensation to a customer if they are they make a claim against you, if they suffer injury or loss as a result of your business. It also acts as an essential safety harness to help your business recover from an incident that, results in a claim.

Even though having public liability insurance isn’t a legal requirement, there are very few businesses that can safely operate without it. Whether you’re a florist or a plumber the chances are you’re exposed to risks which require cover from public liability insurance.

You should consider buying public liability if:

Your clients visit you at your place of work, whether this is an office, business premises or your 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 do you need?

There’s no set answer regarding how much public liability cover your business needs. It’s like asking ‘how long is a piece of string?’. As a sole trader, your business is unique and the level of insurance you need will differ depending on a number of factors.

Surprisingly though, how much public liability 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, ask yourself the following questions:

How much contact do you have with members of the public?

Most businesses come into contact with members of the public and clients at some point. Even if you’re running a small business from the comfort of your own home, if clients visit you for any reason, you have a need for public liability. However, the level of cover would be significantly increased for a business that deals with many clients on a daily basis. Both businesses will benefit from having cover in place but one is more at risk of a claim being made.

Do you have any contracts that require a certain level of public liability insurance?

It’s always best to check any contracts that you have, or are trying to win, to identify if a certain level of cover is required. Most local authorities tend to demand that you have a minimum cover level of £5 million before they’ll put any work your way.

How much liability is your business exposed to?

A simple way to work out your potential liability is to consider the value of your largest contract. The bigger it is, the more important it’s likely to be to your client which means there’s more at stake if something goes wrong. When looking to purchase public liability insurance, you’ll have the option to choose between £1million and £10million of cover. 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.

What’s the worst that could happen?

Nobody expects bad things to happen to them but you need to give some thought to what the worst-case scenario would be for your business and then prepare for it. Remember, being underinsured can be just as bad as having no insurance at all. Opting for the lowest level of cover to cut costs could end up being more expensive in the long run.

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 the cover in place. Paying an insurance premium tends to work out much cheaper than the cost of putting something right yourself.

As a guide, the factors that influence your premium are:

The nature of your business – This has the biggest impact on your premium for obvious reasons. The more risks your business is exposed to, the more expensive your public liability insurance will be.

The insurance provider – Insurance providers use data to decide the amount customers are to be charged for certain risks. This means that premiums can differ hugely from one insurer to another depending on their risk appetite.

That’s why we’ve chosen to work with Arthur J. Gallagher Insurance Brokers Limited to source quotes from a range of insurers. This allows you to select the quote that best suits your needs and your pocket.

Additional cover – Your business will often be exposed to more risks than public liability can cover and so additional insurance is needed. Most insurers give you the option of adding extras such as tool cover and employers' liability to your public liability policy which will understandably increase your premium.

This is not an exhaustive list and there may be other factors which influence your insurance premium.

What other types of insurance might you need?

As a sole trader, public liability is the insurance that your business needs the most but there are many other types of cover that can offer protection too.

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 protection you need. These can generally 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, easier and with just one renewal date to remember.

Other types of insurance you may need as a sole trader include:

Employers’ liability

It’s a common misconception that sole traders work alone. However, just because sole traders operate their business on their own it doesn’t mean that they have to work alone too. Sole traders can employ staff but just like any other business, they have to comply with legal obligations if they do so.

Employers’ liability insurance is a legal requirement for most businesses that employ staff. The cover provides compensation for your employees (including you if you’re an employee in your own business) in the event of them suffering any injury, illness or disease incurred as a result of working for you.

Even if your staff are employed on a casual or temporary basis; if you’re responsible for their actions and you control when, where and how they work; then you must purchase employers’ liability. There are some exclusions but in the main, if you have staff, cover is compulsory.

The consequences of not having the minimum of £5 million cover in place can be a £2500 fine for each day suitable insurance isn’t in place. Furthermore, you’ll need to make sure you display the certificate of insurance where employees can see it. Failure to do so can result in a £1,000 fine.

Tool cover

As a sole trader, your tools are probably the life line of your business. So if your tools are damaged, lost or stolen you simply can’t do your job. This means that you have to cover the cost of replacing or repairing your tools whilst letting your clients down at the same time.

And tool cover doesn’t just provide cover for hammers and drills, it’s also needed for gadgets and business equipment that are essential to your business. Insuring items such as laptops, tablets and mobile phones should not be ignored if they play a vital part in the running of your business.

Having tool cover in place enables you to go about your business knowing that if anything happens to your tools you can get back to work straight away. Upholding the reputation that you’ve worked so hard to build is worth more than any item in your toolbox.

Vehicle insurance

Commercial vehicle insurance is a legal requirement and protects you if you use your car or van for work-related purposes. A standard personal vehicle insurance policy doesn’t offer the same level of protection as commercial vehicle insurance. In fact, your regular car insurance will only cover you for social use and commuting so if you did need to make a claim it would be declined if you were using your vehicle for your business.

With a commercial vehicle insurance policy, you’re protected for when you’re travelling between different work locations or for when you drive employees around, and anything else that you use the vehicle for on behalf of your business.

Getting the business insurance that’s right for you

If you’re a sole trader, you can protect your livelihood within minutes by getting a quick and easy online quote today.

If you’re unsure of the insurance you need and would like some guidance about how to fully protect your business, then you’re only a phone call away from advice.

Simply call 0345 377 0002 and a specialist team of advisers will be on hand to help you get the right cover in place. Lines are open 9am to 6pm, Monday to Friday.

To provide this service we work with Arthur J. Gallagher Insurance Brokers Limited, one of the UK’s largest insurance brokers.

Insurance covers are subject to the individual terms, conditions and exclusions of the of the insurer providing them. Always review the policy documentation supplied during during the quote process to ensure you have the cover you need.