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

Self-employed business insurance is complicated so if you feel overwhelmed by the whole topic then you’re not alone. In this guide, I’ll answer some of the common questions people have. Whether you are new to self-employment or have been working for themselves for a while, I can help to formalise things and set up a business. Even though self-employment gives you freedom, it’s not without risk. Therefore, understanding insurance is crucial to protecting your income, personal assets and business in the event something doesn’t go quite as you planned. If you’re feeling confused about what self-employed insurance you need and getting quotes for self-employed insurance, then read on for the low down on all the essentials.

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. For example, when you need to replace equipment or pay compensation. Alternatively, if you might 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 do break down. 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 a self-employed business insurance policy you can choose to go direct to insurers, like Simply Business. They can scan the different insurers on the market on your behalf to find you the cheapest deals and quotes for self-employed insurance.

It is not a legal requirement to have insurance in certain sole trader businesses but despite this, many people 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. That said, the one you need depends on what you do and how much protection you want. This could result in you may needing more that one type of insurance.

2. Types of Self-Employed 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

If this feels too overwhelming, let me tell you a little more about each one:

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 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. This also applies if 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 customer’s house and spills wax on their client’s 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 Insurance is important if you have a business that supplies goods and products. It’s 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. This is even if you have safety-tested your products. Say, you are a self-employed candle maker selling your products on Etsy. In this instance, then Public Liability Insurance would give cover in the event someone became 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’s your responsibility to have your own equipment. Some of these 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 Insurance 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 earning an income, regardless of who’s to blame, can have a major impact on your life. 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 Insurance

Employer’s Liability Insurance is a legal requirement when you employ people. Its cover for your business in the event that your employee(s) become injured or killed while working for you.

Employer’s 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 frequently 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. This is 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 travelling. However, if you are running a business from home, it’s not a good idea to ignore taking out insurance. If you have more expensive equipment in your home, you should check whether your home insurance protects everything under your existing policy. Alternatively, if you plan to have clients visiting your home, then you may need to consider Self-Employed Public Liability Insurance. This is 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’s possible to take out Income Protection when you’re self-employed. In this case, it 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 50’s plan

The type of policy varies from covering your outstanding mortgage, lump sums of cash or covering funeral costs. The more cover you require, the higher the cost will be. That said, 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. Be aware that some insurers may ask to have a phone call with you to 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 your needs. You’ll pay more insurance the higher your turnover and the more risks associated with your business. For this reason, 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 - a website full of templates, guides and resources for UK sole traders. No faff. No confusion. Just simple straightforward advice on business registration, taxes and bookkeeping.