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Sole trader insurance
You have 3 insurance options when it comes to sole trader insurance, to protect you and your business: Income protection, personal accident insurance or business insurance.
Some 60% of Australian business owners are sole traders. As a sole trader, you have the freedom to be your own boss and pursue your true passions. But it also means you bear the brunt of a range of responsibilities, including workplace safety and insurance.
What you need to know
Sole trader insurance is necessary for many self-employed people who run their business as an individual. This includes tradies, estate agents, hairdressers, market stallholders and home-based workers.
Income protection is one cover to think about. It can offer a steady stream of replacement income if you are unable to work for extended periods of time.
Some policies include total and permanent disability (TPD) cover as well if you need to permanently stop work and premiums are usually tax-deductible.
Business insurance
A business insurance policy can include professional indemnity insurance, which provides protection for anyone who dispenses professional advice. It's often compulsory.
Liability insurance protects you for legal fees and compensation if you're accused of negligence and you need to defend yourself. Costs may arise from property damage after an accident, or medical fees if you cause injury or illness to others.
Public liability and professional indemnity insurance is compulsory for certain professions. Without it, you might not be able to operate with a full licence.
Personal accident insurance
Personal accident insurance is a cheaper alternative to income protection that only covers accidental injury – not illnesses.
Unlike income protection insurance, there are no medical questions or tests involved at application.
A lump sum is often paid in the event of permanent disability or death.
Compare your sole trader insurance options
Click each to explore the policies you can apply for as a sole trader:
Insurance director: What sole traders should keep in mind
There are some insurance covers that are simply 'must haves' like Public liability, General property, Contents & Stock and Workers' compensation. Then there are others that are highly advised, including most business insurances like Business interruption insurance and Cyber insurance. When it comes to insurance, the biggest mistake a sole trader can make is not having enough 'sum insured' – that is, not having enough insurance coverage to reflect today's replacement costs. Being underinsured is a huge business risk, which is why sole traders should seek advice from a professional insurance adviser.
What types of business insurance does a sole trader need?
These are the types of business insurance to consider if you're a sole trader:
Public 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.
Professional indemnity insurance. Professional indemnity insurance provides protection for anyone who offers professional advice, such as an architect designing building plans or an accountant. If you're a sole trader who gives advice to clients, seriously consider professional indemnity insurance in case that advice causes problems. This type of cover can include acts of defamation and the mishandling of customer data. It can cover both claims with and without merit.
Workers' compensation. If you're a sole trader and you have employees, you need to take out workers' compensation for them. This is a legal requirement in Australia.
Why is sole trader insurance important?
Unlike most employees in Australia, sole traders are not eligible for workers' compensation. Not having access to work cover means that if you're injured on the job, you won't have access to any form of financial compensation.
Why can't sole traders get workers' compensation?
A sole trader doesn't qualify for workers' compensation because, in order to be eligible, you must be employed by another person or company.
When you're their employee, they're required to take out workers' compensation on your behalf.
How do I get covered for injuries when I'm a sole trader?
Without workers' compensation, there are 2 main ways you can get covered for injuries you may sustain.
Personal accident insurance
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.
Income protection
The other stronger 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.
3 things to keep in mind with sole trader insurance
When considering sole trader insurance there are a few important factors to look at:
1. Waiting period
Business expenses insurance has waiting periods anywhere from 14 days to 12 months. The waiting period determines how long you will have to wait to receive the benefit after you make a claim. The shorter the waiting period the higher your premium.
2. Features and limitations
No 2 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.
3. Flexibility
Another important factor that you might want to check is how flexible your policy is. For example, some premiums increase in-line with inflation, in which case you can avoid being underinsured.
Criteria will often vary between policies, but in general:
There is usually an age limit. This is usually between 18 and 69 for personal accident and up to 59 or 60 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 often get cover if you are considered to be living here permanently.
How much sole trader insurance do I need?
To help you answer this question, ask 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. It means you might not require as much cover.
Do you have plans to expand your business? If you're planning on expanding your business in the future, you need to ensure that your company can continue to grow without you.
Do you have loans or debts? While sole trader insurance is for protection of your business's fixed costs, it can also ease the financial strain for you in times of need. It allows you to continue to pay your ongoing business expenses.
Why you can trust Finder's income protection experts
We're free
You pay the same as buying directly from the insurer. We make money from referral fees when you choose a policy, but you don't pay any extra.
We're experts
Our team of income protection experts have researched and rated dozens of policies as part of our Finder Awards and published 80+ guides.
We're independent
Unlike other comparison sites, we're not owned by an insurer. Our opinions are our own and all guides must meet our editorial standards.
We're here to help
Since 2016, we've helped thousands of Australians find income protection by explaining your cover options, simply and clearly.
Frequently asked questions
A sole trader is a self-employed person who runs their own business as an individual. Sole traders bear the legal responsibility for their company, including losses and everyday business decisions.
It varies. There's a spectrum of different types of cover to match the different types of industries a sole trader could operate in. As a general guide, we sourced 3 business insurance quotes for $10 million worth of public liability, and prices ranged from $24 to $257 monthly.
It isn't a legal requirement, no. However, it is considered a must-have for many sole traders. Also, some companies that work with you may insist you have public liability insurance in order to do business. For example, it's a common requirement if you run a market stall.
Business.gov.au recommends you speak with "a licenced insurance broker, business advisor or insurers" to determine which insurance your business needs.
Income protection insurance replaces a portion of your income based on your annual earnings in the 12 months leading up to your injury or illness.
If you have a variable income, it's important to be aware of the caps which now apply to income protection. These are less generous to sole traders than agreed value policies, which were stopped in 2020.
Potentially, yes. While home insurance can cover your building and most contents, it won't cover specialist equipment or any clients who visit your property. Home business cover can help you out here.
Some insurers give you the option of covering your home and business in one combined policy.
Public liability insurance won't cover you for any damages to your own company, or injuries or death to you or any employees. Plus, any other exclusion as outlined in your policy.
You may want to look into cyber liability insurance, to help protect your company from cybercrime. It's a form of business insurance that compensares you for lost profits if you're unable to trade owing to a breach. You can also cover privacy protection risks, which can be valuable if you collect and store client information digitally.
James Martin was the insurance editor at Finder. He has written on a range of insurance and finance topics for over 7 years. James often shares his insurance expertise as a media spokesperson and has appeared on Prime 7 News, WIN News, Insurance News, 7NEWS and The Guardian. He holds a Tier 1 General Insurance (General Advice) certification and a Tier 1 Generic Knowledge certification, both of which meet the requirements of ASIC Regulatory Guide 146 (RG146).
One of the benefits of income protection insurance is that you may have the ability to claim a tax deduction on your premium benefits. Find out if the same rules apply for policies inside super.
Looking for the best income protection insurance but not exactly sure where to start? Compare the Finder Awards 2023 insurance winners.
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