What Insurance Do I Need if I’m Self-Employed?

Self-employed insurance is complicated, so if you’re feeling overwhelmed by the whole topic then you are not alone. In this guide, I’ll answer some of the common questions people have whether they are new to self-employment or been working for themselves for a while but what to formalise things and set up a business. Because even though being self-employed gives you freedom, it’s not without risk so understanding insurance is crucial to protecting your income, personal assets and business in the event something doesn’t go quite as you planned.

Table of Contents

1. What is Insurance and Why Do You Need It?

Insurance is financial protection in the event something goes wrong in your business and you need to replace equipment or pay compensation. For example, if you have an unhappy client who wants to sue you, you lose your laptop or you become unwell and cannot work.

No one wants to think of the worst but things can go wrong and relationships break down. And should this happen, your insurance policy will pay-out covering things like the cost of assets, legal fees or loss of income. It’s a bit like car insurance, where you pay an amount for a policy that will, for example, pay for repairs to your car if you are in an accident.

When you take out an insurance policy you can choose to go direct to insurers, like AXA, or go through what is known as an insurance broker, like Simply Business who scan the different insurers on the market on your behalf to find you the cheapest deal.

It is not a legal requirement to have insurance in certain sole trader businesses but despite this, many choose to take out insurance regardless to:

  • Protect themselves in the event of a claim
  • Cover the cost of replacing expensive equipment in the event of loss, damage or theft
  • To meet client requirements

There are 7 different types of business insurance, but the one you need depends on what you do and how much protection you want, meaning you may need more that one type of insurance.

2. Types of Business Insurance

Here are some of the 7 most common types of self-employed insurance:

  • Professional Indemnity
  • Public Liability
  • Product Liability
  • Business Equipment
  • Business Interruption
  • Employers Liability
  • Business Motor

Let me tell you a little more about each:

2.1 Professional Indemnity

Professional indemnity (PI) insurance is mainly for service-based sole traders.  It covers the legal costs and expenses incurred if you’re found to provide incorrect or inadequate advice which causes your client financial loss.

Self-employed individuals who may need Professional Indemnity Insurance include:

2.2 Public Liability

Self-employed public liability insurance covers you for legal fees and compensation in the event that a member of the public is injured or their goods are damaged as a result of coming into contact with your business or member of your team. This can be at your business premises or at your customers’ premises.

For example, a self-employed beautician visits a customers house and spills wax on their customers’ carpet.  The beautician would be able to claim on their public liability insurance for the damage.

Many sole traders choose to take out public liability insurance, especially if they have clients visiting their premises or they go to their customers such as:

2.3 Product Liability

Products liability is important if you have a business that supplies goods and products. It is insurance cover for legal fees and compensation in the event that someone is injured or their property is damaged by something you have sold them.

If you make, repair and manufacture any products then you should consider taking out public liability insurance, even if you have safety-tested your products. Say you are a self-employed candle maker selling on Etsy then public liability insurance would give cover in the event someone is damaged by a defective candle for example or a fire.

2.4 Business Equipment Insurance or Portable Equipment Insurance

Business equipment insurance covers the cost of replacing equipment which has been lost, stolen or damaged.

When you’re self employed it is your responsibility to have your own equipment – some of which may be expensive and business critical. Business equipment insurance or portable equipment insurance would cover the cost if there was an unexpected loss or damage to equipment like:

  • Mobile phone
  • Laptop
  • Tablets & iPads
  • Tools
  • Camera equipment

2.5 Business Interruption Insurance

Business interruption is financial cover if you are unable to trade to compensate you for loss of income or profits if a major event or natural disaster happens such as:

  • Fire
  • Explosion
  • Earthquake
  • Theft
  • Vandalism

Some business interruption policies even offer cover for increased trading costs, if you find a way to continue to run your business despite the event. Business interruption insurance only covers financial losses. Separate insurance policies to cover things like premises and equipment will still be required.

When you’re self-employed not being able to earn, regardless of who’s to blame, can have a major impact on your life so business interruption insurance can offer you protection and peace of mind that you can continue to pay your personal bills while you get your business back on its feet.

2.6 Employer’s liability

Employers liability insurance is a legal requirement when you employ people. It is cover for your business in the event that your employee(s) are injured or killed during the course of working for you.

Employers liability only covers people who are on your payroll.  It does not cover injury of sub-contractors, consultants or contractors who invoice you for their services.

2.7 Business Motor Insurance

Business motor insurance is different from personal motor insurance and is often overlooked. If you plan to use your car for business purposes then you should let the insurer know and extend your policy for business cover.

Business motor insurance is generally more expensive than personal motor insurance because insurers assume that a business driver will use their vehicle more and drive more miles, in particular during rush hour.  

3. Insurance If You Work From Home

Working from home is more popular than ever, especially with freelancers and sole traders because it avoids the costs of renting an office and travel. However, insurance, if you are running a business from home, shouldn’t be overlooked. If you have more expensive equipment in your home you should check whether your home insurance protects everything under your existing policy. Or if you plan to have clients visiting your home, then you may need to consider self-employed public liability insurance to cover you in the event they are injured and you need to pay them compensation.

4. Can You Get Income Protection When You’re Self-Employed?

In this guide we have talked about the different types of business insurance available which protect your business in the event something unexpected happens. But what happens if you fall ill and cannot work, or worse.

In this case, it is possible to take out income protection when you’re self-employed which will pay out sums of money to help you pay your bills while you are not able to work (income protection is also referred to as Life Insurance). There are four different types of income protection for sole traders available:

  1. Decreasing term life insurance (or mortgage life insurance)
  2. Level term life insurance
  3. Whole of life insurance
  4. Over 50s plan

The type of cover varies from covering your outstanding mortgage, lump sums of cash or covering funeral costs and the more cover you require the higher the cost will be, but life insurance premiums do start from 20p per day, so it is worth investigating.

5. How to Get Quotes for Self-Employed Insurance

You can go online to get quotes for your insurance although some insurers may ask to have a phone call with confirm details before your policy takes effect. That’s just so they can double-check your details and that you have the right policy for you. You’ll pay more insurance the higher your turnover and the more risk associate with your business so it’s difficult to make direct comparisons for pricing. Going online for quotes will give you a good idea of the price you need to pay – Simply Business specialises in self-employed insurance has an online tool which gives you an instant quote.

About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of www.goselfemployed.co - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.