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Sole Trader Insurance

You have three options as a sole trader, read on to compare them.

Updated

While being a sole trader provides you with a range of rewards such as freedom and the satisfaction of knowing you are your own boss, you're also solely responsible for anything that goes wrong. This can lead to severe financial issues, but fortunately insurance can help if:

  • You get sick or have an accident. Income protection can provide a steady stream of replacement income if you're unable to work for extended periods of time. Personal accident insurance can help if you have a serious accident.
  • You deal with the public. Whenever people are involved, the chance that you could be held responsible for accidents or damage they have increases. Public liability insurance is crucial.
  • You have employees. If you employ workers, you're legally required to get workers compensation.

Compare insurance options for sole traders

Name Product Maximum Monthly Benefit Maximum % of Income Covered Maximum Benefit Period Waiting Period Options
NobleOak Income Protection
$25,000
75%
2 years or to the age of 65
30 or 90 days
AAMI Income Protection
$10,000
75%
5 years
14, 28, 60 or 90 days
Insuranceline Rate Saver Income Protection
$10,000
85%
5 years
14, 28, 60 or 90 days
Get a $100 bonus gift after 2 months. Plus get 12 months cover for the price of 11 if you pay annually. T&Cs apply.
Medibank Standard Income Protection
$7,500
75%
5 years
30 or 90 days
You could win a $2000 Gift card when you get an Income Protection Insurance quote by 30 August. Winner drawn fortnightly. Plus, Medibank health members save 10% every year. T&Cs apply.
nib Income Protection
$10,000
85%
2 years
14 or 28 days
Get one month free when paying annually. T&Cs apply.
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Compare up to 4 providers

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What types of insurances are relevant to sole traders?

Like any businesses, sole traders need a variety of insurances to protect themselves and their livelihood. Options include public liability insurance, motor vehicle insurance and business insurance, as well as personal insurances such as income protection or personal accident insurance.

Income Protection Insurance provides up to 75% of your income if you are ill or injured and unable to work, and total and permanent disability (TPD) insurance is often bundled with IP insurance to provide additional cover if you are totally and permanently disabled. Premiums for IP insurance held outside of your superannuation fund are also tax deductible, or if funded through your superannuation, benefits paid are taxed at a much lower rate.

As a sole trader it's a good idea to consider your business activities and decide what type of business insurance is right for you. For example, if you provide professional services, then a professional indemnity policy should be considered.

Some sole traders opt for personal accident insurance as an alternative to IP. While it only covers accidental injury and does not cover illness, it is a lot cheaper than IP insurance. Advantages of personal accident insurance include:

  • It pays a regular benefit for a period of time if you are injured and can't work, so it can provide an alternative if you don't qualify for IP insurance.
  • Unlike IP insurance, there are no medical questions or tests involved at application.
  • Capital benefits are often paid in the event of permanent disability or death.
  • Premiums can be lower than IP insurance.

The most important reason for sole traders to consider cover

No workers compensation

Unlike most employees in Australia sole traders are not eligible for workers compensation. Not having access to work cover mean that if you're injured on the job, you won't have access to any form of financial compensation.

While it's not a legal requirement for you to have personal insurance, you may want to consider an income protection or personal accident policy.

Workers compensation vs work arrangement

Employment StatusAre you eligible for workers compensation?Insurance types to consider
EmployeeYesIncome protection for extra protection
Sole traderOnly for your employeesIncome protection to fill the gap of workers compensation Personal accident insurance workers compensation for your employees
ContractorYes (if you are considered a worker under state legislation)Income protection if not eligible for workers compensation Personal accident insurance

Why can't sole traders get workers compensation?

A sole trader does not qualify for workers compensation because, in order to be eligible, you must be employed by another person or company. When you are their employee, they are required to take out workers compensation on your behalf.

As a sole trader, you are not an employee but an employer and, if you have any staff working for you, you must take out workers compensation on their behalf. You should also look for other forms of financial protection for yourself and your business, such as IP insurance.

You will need to provide cover for your employees

It's worth pointing out that if you are a sole trader, you will need to have adequate work cover in place for any of your employees.

What insurance does a sole trader need?

When you are a sole trader, you are not legally required to take out any insurance (unless you need workers compensation, as covered above). However, there are a couple types of insurance you should strongly consider to help cover costs in case something goes wrong.

  • Business protection. Business costs can still mount up even when you're unable to operate as normal. If a fire were to burn down your hairdressing salon or a thief were to steal your expensive electrician's tools, business protection could help you get back on your feet and even keep going in the meantime.
  • Professional indemnity. Professional indemnity insurance provides protection for anyone who dispenses professional advice, such as an architect designing building plans or a lawyer. If you're a sole trader who gives advice to clients, seriously consider professional indemnity insurance in case that advice causes problems or damage.
  • Liability insurance. When there's any chance of people having an accident on or because of your business, public liability insurance is a must. This can help with compensation and legal fees if someone trips and falls on your business premises or injures themselves in your restaurant.

How do I get covered for injuries when I'm a sole trader?

Without workers compensation, there are two main ways you can get covered for injuries you may sustain.

The first, cheaper option is personal accident insurance, which will provide you with a lump sum when you have an accident resulting in an injury and can't work. Personal injury insurance comes in a few forms, including standalone accident cover and total and permanent disability insurance. It will not cover you if you get sick, only injured.

The other more robust form of cover is income protection, which can also help make up for lost income when you are unable to work. The big difference between income protection and personal accident insurance is that income protection will also cover you when you get sick, and usually compensates you in the form of an ongoing payment, rather than a single payout.

Things to consider when applying for sole trader insurance

When considering sole trader insurance there are a few important factors to look at:

  • Waiting period. As business expenses insurance has waiting periods anywhere from 14 days to 12 months. The waiting period determines how long you will have to wait receiving the benefit after you make a claim. The shorter the waiting period the higher your premium.
  • Features and Limitations. No two policies are the same. Make sure you understand the features and limitations of your policy. Take note of how things are defined to avoid any misunderstanding and disappointment when making a claim.
  • Flexibility. Another important factor that you might want to check is how flexible your policy is, make sure it increasers with CPI to avoid being underinsured.

Am I eligible for Sole Trader Insurance?

Criteria will generally vary between policies, but in general:

  • There is usually an age limit. This is usually between 18 and 75 for personal accident, and up to 64 for income protection.
  • Permanent resident. You'll need to either be a citizen or be considered a permanent resident of Australia. If you're on a working visa, you can get cover if you are considered a permanent resident and a policy agrees to cover you.

How much cover do I need?

This is perhaps one of the most common questions people have. While the answer to this question varies from person to person, you can calculate your needs by asking yourself:

  • Do you have funds you can readily access? Having some savings only apportioned to your business can provide you with a much needed safety-net and mean that you don't require as much cover as someone who is devoid of saving.
  • Do you have plans to expand your business? If you're planning on expanding your business at any time in the future, you need to ensure that your company can continue to grow without you at the helm.
  • Do you have loans or debts? While sole trader insurance is for protection of your business' fixed costs, it can also lessen the financial strain for you in times of need. It will allow you to continue to pay your ongoing business expenses.

Sole trader insurance gives you the assurance of being able to continue your business even if you fall into hard times. Why risk losing it all when you can have something to protect your lifelong investment with sole trader insurance?

Picture: GettyImages

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