Do the Self-Employed Need Insurance?

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Self-employed workers need insurance. In fact, sole trading businesses arguably most need business insurance as owners face the biggest personal financial risks. Unlike limited companies, self-employed and sole trader businesses take a bigger financial burden on their shoulders.

There are now 5 million self-employed businesses in the UK and rising, representing more than 15% of the labour market, according to the Office of National Statistics.

The freelance industry is clearly booming in the UK. But with this new freedom, workers are also exposed to more risks. Unlike when an employee, they are personally responsible for all costs. According to NimbleFins, several nightmare scenarios could see a self-employed worker being sued, with litigation and compensation easily running into thousands if not tens of thousands of pounds. Without insurance, the self-employed worker would be expected to cover these costs themselves.

What insurance do self-employed need?

The insurance a self-employed worker needs depends entirely on the work they do and the risks they are willing to absorb themselves.

The products required may also change as the business develops and grows.

Here is a quick run-down of insurance products and who needs them:

Type of insurance Who needs it?
Employers’ liability insurance Most self-employed businesses that hire a worker.
Public liability insurance Customer-facing businesses or those that go into customers’ homes/work with their property.
Product liability insurance Those that make and sell products.
Professional indemnity insurance Those who provide their expertise, advice, knowledge or service.
Contents insurance Those that couldn’t afford to replace their goods, such as computers, equipment or stock.
Cyber insurance Those who take online card payments or feel at risk of cyber extortion or rely on computers to trade.
Business use car insurance Anyone who drives as part of their job, e.g., seeing clients (but this doesn’t cover paid delivery driving).
Tax and legal expenses Those who feel they couldn’t cover the cost of legal help for unexpected incidents.
Personal accident insurance Anyone who needs a financial safety net if they were injured at work and unable to trade.
Business interruption insurance Anyone worried about the cost of loss of trade if they lost their place to work or a vital piece of equipment.

Types of self-employed business insurance

There are many types of self-employed business insurance policies, rather than being a one size fits all package. Instead, each individual must look at what is needed, as not all types of coverage will be necessary for every self-employed worker.

Here is an explanation of each type of self-employed business insurance policy:

Employers’ liability insurance: This is a legal requirement if a self-employed worker hires someone to help them. It covers legal costs and compensation if the worker is injured or ill due to their work. Not all workers need to be covered by this insurance, but most do.

Public liability insurance: This covers legal costs and compensation if a member of the public has property damaged or is injured and the business is to blame. This could be if the self-employed worker carries out business in a customer’s home or has people visiting their place of work.

Product liability insurance: Similar to public liability insurance, this covers legal costs and compensation if a member of the public has property damaged or is injured due to a product sold by the business.

Professional indemnity insurance: This covers legal and compensation costs if work a business did cost their client money. This could be in lost revenue or in the cost of putting things right, for example. This would be the case for businesses that sell their skills, advice, knowledge or service, and could be down to a genuine mistake or negligence. Some trade bodies, such as the Institute of Chartered Accountants in England and Wales) and the Architects Registration Board’s Code of Conduct) require this as terms of their membership. Other types of business that need professional indemnity insurance include marketing or PR professionals, tradesmen, landscape architects, plumbers, electricians.

Contents insurance: This covers the cost of essential and valuable equipment if it is damaged, lost or stolen. If working from business premises, it can also cover furniture and furnishings. Stock insurance is usually an add-on to this policy for an extra cost.

Cyber insurance: This is a range of products within one, all related to computer issues. While policies differ, they can include business interruption cover from a computer incident that prevents trading, as well as legal and IT expertise to get back up and to run if a virus or ransomware attack occurs. They can also fund experts to recover lost documents and cover the cost of notifying customers. Some policies even cover extortion or ransom payments. Those who take online card payments or handle sensitive data are particularly at risk of compensation claims if there was a cyber attack.

Businesses use car insurance: If a self-employed worker uses their car for business, such as going to meet clients, they are essentially driving uninsured if they do not have business use cover. Staff and spouses can also be covered under this insurance, although policyholders should inform their provider, resulting in a higher premium.

Tax and legal expenses: Covering the cost of legal fees for situations such as chasing debts, contract disputes, HMRC  investigations and more.

Personal accident insurance: This covers lost earnings if the self-employed person is unable to work due to injury or illness. This insurance makes payments as either a weekly benefit or a lump sum depending on the severity of the injury.

Business interruption insurance: Covers the lost income or additional costs if a qualifying incident left the self-employed worker unable to work, such as a fire, flood or theft to the business premises, or theft of a vital piece of equipment such as machinery or laptop.

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