Why do sole traders need insurance?

Sole traders need insurance to protect them from the cost of business-related claims, accidents and unexpected costs. Without the right cover, sole traders pay compensation and legal fees out of their own pocket. This puts their personal finances at risk, including their homes, savings and assets should anything unfortunate happen.

What risks do sole traders face without insurance?

Without insurance, sole traders run the risk of financial difficulty should something go wrong while running their business. What might go wrong, you ask? Unfortunately, lots of things. And this is where it starts to get expensive.

A sole trader chooses a business structure that’s straightforward to set up, simple to draw a profit from and with a lot of flexibility that’s attractive to many tradespeople. However, legal costs, compensation settlements amounts and lost income are all expenses for the sole trader to bear, making it quite high-risk if you choose to skip the insurance.

Here are some risks that can jeopardise an uninsured sole traders’ livelihood:

• Causing an injury - An uninsured sole trader could be held liable for an injury caused to a customer or member of the public in the vicinity of their job site. Take a look at Public Liability Insurance for protection here.

• Damage to someone’s property – a sole trader could accidentally damage third party property while hard at work. In such cases, a claim from the affected party is highly likely to follow the incident. This is another for Public Liability Insurance.

• Personal accidents and illnesses – without the benefit of an employer sick pay scheme, sole traders are on their own financially if they are injured or ill and cannot work for a while.

• Professional mistakes – Professional negligence can spell disaster for uninsured sole traders if a costly claim for damages arrives on the doormat. This is one for Professional Indemnity Insurance.

• Tool and equipment theft – sole traders don’t have a company account to order new tools through if they get stolen. This is another cost that an uninsured sole trader must bear. See how Tool Insurance can benefit you here.

• Legal trouble – employment tribunals, non-paying customers and tax disputes can cost a fortune to battle in the courts.

Do clients or contracts ever require sole traders to be insured?

Yes. Some sectors, clients and contract types do require a sole trader to be insured before they start work.

Generally, most customers want to see a sole trader covered by Public Liability Insurance as a minimum. This is an important policy, as it assures the customer that if something goes wrong, the sole trader can smooth it over and the customer won’t incur any financial losses themselves.

Depending on the nature of the work being carried out, some clients require Professional Indemnity Insurance to be in place – again, to ensure that the sole trader can put right any discrepancies and claims of professional negligence.

Finally, Employer’s Liability Insurance is usually legally required is a sole trader employs anyone else in their business, subject to a few exclusions. Having the appropriate cover can help sole traders meet these requirements, demonstrate professionalism and build trust with potential clients.

What could happen financially if a sole trader isn't covered?

If a sole trader isn’t covered by insurance, they must pay for any costs relating to compensation claims, legal fees and other types of business costs themselves. This is a huge financial gamble that no sole trader wants to take!

It’s important to remember that sole traders are personally responsible for risks and liabilities, with their own finances at risk should they need to pay out following a claim against their business. When you weigh up the cost of insurance premiums against the cost of an unexpected, uncapped bill if someone is seriously injured as a result of your business for example, it starts to look like a no-brainer.

Is Sole Trader Insurance a legal requirement?

The only insurance policy currently required by law is Employer’s Liability Insurance, subject to one or two exemptions. This one will pay out if your employees are injured or are ill as a result of your negligence.

Just because a policy isn’t legally required, however, doesn’t mean it’s not usually needed to book those decent jobs. Most people won’t work with a sole trader who doesn’t hold Public Liability Insurance, for example, simply because it’s too great a risk for them to take.

How can Rhino help sole traders protect their business?

Rhino Trade Insurance are experts in Sole Trader Insurance and can talk you through the different options your sole trader enterprise might need to stay protected.

Rhino can quickly assess the size and shape of your business, and talk you through the policies that are available to you.

You don’t even need to talk to Rhino directly if you’re in a rush – you can do it all online and get the insurance documents in your inbox in just a few minutes. You’ll be covered that same day if needed – no long wait for paper to make its way through the post.