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Do sole traders need insurance?

What is a sole trader?

Before answering the question, "Do sole traders need insurance?", it's important to understand what a sole trader is. 

The term “sole trader” refers to a person who owns and runs their business as an individual. 

Being a sole trader offers many advantages, including full control of the business and all its profits. However, you’re also legally responsible for all aspects of the business, which means that any debts or losses you incur are your responsibility alone.

What’s sole traders insurance, and why do you need it?

Sole traders insurance protects business owners who work independently by offering financial assistance in the event of an accident, damage or loss.

Sole traders need insurance to protect their:

  • Personal assets: If someone sues your business or you’re facing other legal action, sole traders insurance protects your personal assets.

  • Income: If you’re a sole trader who relies on your business profits to pay your mortgage, losing your income for even a few months could put you at risk of defaulting on your home loan. Sole traders insurance can cover your loss of income.

  • Property: If a fire, storm or other disaster damages your business premises, sole traders insurance can cover the costs of repairing or replacing the property.

What insurance do sole traders need?

There are various insurance options that sole traders can choose from, but not all policies will be suitable for every business.

That’s why it’s so important to understand your risks and needs before buying any policy. Here are some types of insurance that sole traders should consider: 

Income protection or disability insurance

If an injury or sickness prevents you from working and causes you to lose part of your income, this policy will help cover some of those losses. It can help cover living expenses and maintain your lifestyle while you can’t work.

This insurance is for sole traders who:

  • Have any debt, like a mortgage, that they still need to pay

  • Support other people, like dependents or family members.

Professional indemnity insurance

Professional indemnity insurance safeguards you from accusations of negligent service or advice.

If a client claims they’ve suffered a financial loss because of your business, this policy can help cover the costs of any legal action, damages and settlements that arise.

Sole traders who could benefit from this type of insurance include:

  • accountants

  • allied health professionals

  • architects

  • engineers

  • marketing consultants

  • veterinarians.

Many industry-specific associations offer lower-cost indemnity insurance policies. Compare rates before buying a policy to get the best deal.

Public liability insurance

Do sole traders need public liability insurance

Yes, if there's a chance an act of negligence could cause injury to someone or damage to their property. For example, if someone reports a trip hazard in your place of work and you fail to repair it, your public liability insurance could cover a person’s damages if they trip and suffer an injury as a result.

Public liability insurance helps pay for legal fees, settlements and judgements if a customer sues you and a court finds you liable for damages. 

This insurance is ideal for sole traders who:

  • Have customers or clients visiting their premises

  • Work with equipment, hazardous materials or tools that could cause injury or property damage.

Tool and equipment insurance

This policy is a good option to protect your tools and equipment from loss or damage.

Tool and equipment insurance can cover repair and replacement costs. Sole traders who could benefit from tool and equipment insurance include:

  • builders

  • carpenters

  • electricians

  • plumbers.

Total and permanent disability (TPD)

If you become permanently disabled and can’t work, TPD insurance gives you a lump-sum benefit. It can help cover the costs of:

  • living expenses

  • medical treatment

  • rehabilitation

  • repaying debts like a credit card or mortgage

  • retirement savings.

Sole traders in high-risk professions, like construction, may be required to pay higher premiums than other policyholders for this type of insurance.

Workers’ compensation insurance

Answering the question, “Do sole traders need workers’ compensation insurance?”, depends on whether they employ staff.

All states require sole traders who employ people to have workers’ compensation — though some may qualify for an exemption. This policy covers employees’ personal injuries and property damage.

Workers’ compensation insurance won’t cover a sole trader as an “employee.” But you may be able to get an accident and sickness policy through a private insurer to cover the costs of lost income, should you need time to recover from an illness or injury.

Key considerations when buying insurance for your sole trader business

Understand your risks

First and foremost, you need to understand the risks associated with your business. This will help you decide what type of cover you need. For example, if you run a home-based business, the risks will differ from those who own a retail store.

Work out your budget

Once you know what cover you need, you can start shopping around for policies. But before you do, it’s important to understand what you can afford to spend on premiums. Remember that the cheapest policy might not always be the best. It’s essential to read the fine print and ensure you’re getting the cover you need at a price that suits your budget.

Shop around

Get quotes from a few providers as you’re shopping for insurance. This will help you compare policies and find the best deal. It’s also good to speak to a broker or financial advisor to get professional advice about the right cover for your business.

Disclaimer: This is general advice, so don’t rely on it as a replacement for professional guidance. When you’re looking for someone to help advise you on business decisions, it’s best to find somebody qualified near you.

Keep your business running smoothly with MYOB

Starting a business is hard work. There’s a lot to consider, including all important business insurance. But when you have all the foundations in place, your next step is to launch your startup and build it.

MYOB can help. Our online accounting software offers powerful solutions for your finances, invoicing, payroll and much more. Whatever your business goals, MYOB has you covered.

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