Do You Need Business Insurance to Work as Self-Employed?

Are you wondering whether you need business insurance to work as self-employed? Many people jump into self-employment without considering business insurance. Others set up a business and simply ignore it. Either way, not having business insurance could be putting you at serious financial risk.

Here you’ll learn what business insurance is, the different types available and why it matters if you’re a small business owner.

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1. What is Business Insurance?

Insurance, both business and for individuals, is financial protection in the event something goes wrong. If you have a car, you’ll know that you need to pay a premium to an insurer who pays out if you damage, have an accident or write off your car. Any excess you need to pay and limits on the amount you receive will be set within your policy – which are the terms of your arrangement with the insurer that you signed up to when you took out the policy.

Business insurance works in a similar way, where you pay an amount (which is a tax allowable expense) for financial protection depending on the type of policy you take out, the amount of cover you go for and any restrictions the insurer puts in place.

There is no legal requirement to have self-employed business insurance 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
  • As protection for employees and as an employer

You can take out business insurance by going directly to an insurer like Hiscox or you can go through an insurance broker. A broker is an agent who reviews suitable policies on offer by insurers on your behalf to find you the cheapest deals and policy that is right for you.

Want to get a business insurance quote? Take a look at Simply Business. You can fill out the form online and get a quote within minutes.

2. Types of Business Insurance for the Self-Employed

There are 7 main types of business insurance. You probably don’t need them all, but you may need more than one:

  • Professional Indemnity (PI): usually for service-based business owners, PI covers legal costs and expenses incurred if you provide incorrect or inadequate advice which causes your client financial loss.
  • Public Liability: cover 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 either at your business premises or customers premises.
  • Product Liability: insurance for legal fees and compensation in the event that someone is injured or their property is damaged by goods or products you have sold them.
  • Business Equipment or Portable Equipment: covers the cost of replacing equipment that has been lost, stolen or damaged.
  • Business Interruption: financial cover if you are unable to trade and need to be compensated for loss of income or profits as a result of a major event or natural disaster such as a fire, explosion, theft and vandalism. Some policies offer cover for increased trading costs to cover the increase in overheads if you find a way to trade despite the event. Business interruption on covers financial losses, separate insurance is required to cover things like business premises and equipment.
  • Employers Liability: this is legal requirement if you are an employer offering cover in the event an employee is injured or killed while working for you. Employer’s liability only covers people who receive a payslip from being on your payroll. It does not cover injury of sub-contractors, consultants or contractors who invoice you for their services.
  • Business Motor: Business Motor Insurance is different from personal motor insurance and is frequently overlooked. If you plan to use your car for business, 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

If you are self-employed and running a business from home then you may need to consider small business insurance. For example, you may have expensive equipment in your home that may not be covered under your home insurance. Or if you have clients visiting your home, then you may need to consider public liability insurance, in case they are injured in your home.

4. Self-Employed Income Protection

Income protection insurance (also known as life insurance) is financial cover in the event that you fall ill and cannot work, or worse. Income protection pays out sums of money to help you pay your bills while you are not able to work. There are four different types of income protection insurance available if you’re self-employed:

  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.

Disclaimer: Whilst I am a business owner and have an understanding of business insurance, I am not an insurance specialist. Always seek professional advice from an insurance expert who will help you to assess your situation and make recommendations that are right for you.

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About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek and money nerd helping financial DIY-ers organise their money so they can hit their goals quicker.