Business Insurance for Sole Traders

What does it mean to be a sole trader? 

The term ‘sole trader’ is often used interchangeably with similar words like ‘freelancer’ or ‘self-employed’, but these aren’t necessarily the same thing. 

Being a sole trader means you own and operate your business solo, and for legal purposes, you and the business are the same entity. This is the simplest business structure in Australia and can include tradies, photographers, taxi drivers or online business owners. 

‘Self-employed’ simply refers to anyone who works for themselves. This can include a sole trader as mentioned, being part of a partnership or someone running their own company.¹Services Australia – Self-employed obligations

‘Freelancing’ refers to the nature of the work rather than a specific business structure. Freelancers typically bounce between different projects and clients.

In a nutshell, while all freelancers and sole traders are self-employed, not all self-employed people are sole traders or freelancers.  

Why do sole traders need business insurance? 

There are all kinds of sole traders operating in Australia, from plumbers, shop owners and hairdressers to architects, graphic designers and writers.  

Depending on the kind of business you’re running, your business insurance needs can vary. But one constant across any profession is that business insurance can be an incredibly valuable part of your business toolkit. 

As a sole trader, you and your business are one and the same. If your business faces an insurance claim, you’re personally liable for it. This is unlike a company business structure, which can typically contain the loss within the company.  

This means that personal assets like your home, car and savings could be at risk if you were suddenly up against unexpected legal costs. Business insurance can offer financial protection if something goes wrong – like a badly installed toilet that causes water damage or a customer having an accident in your store.  

What kinds of business insurance might different sole traders need?

Bakery owner

• Public liability insurance
• Product liability insurance
• Contents insurance 

Individual retailer

• Public liability insurance 
• Contents insurance 
• Theft insurance 
• Workers’ compensation 

Self-employed electrician

• Public liability insurance 
• Portable equipment insurance 
• Personal accident and illness insurance 
• Professional indemnity insurance  

Freelance writer

• Professional indemnity insurance 
• Cyber liability insurance  

Independent fitness trainer

• Public liability insurance 
• Portable equipment insurance 
• Professional indemnity insurance 

Mobile hairdresser

• Public liability insurance 
• Product liability insurance 
• Portable equipment insurance 

Public liability insurance 

Lots of sole traders interact with different members of the public. A painter might work in homes or commercial properties, while a freelance make-up artist could be hopping between private clients, fashion shows and weddings. These interactions increase the risk of unexpected accidents or mishaps occurring. 

No matter what kind of work you do as a sole trader, public liability insurance could provide a useful financial safety net. It covers you if your business activities result in third-party bodily injury or property damage, and your business is held responsible. Perhaps your ladder causes a client to trip and break their arm, or your make-up spills all over the bride’s dress and results in a claim for the damages. 

Professional Indemnity insurance  

If you’re a consultant, designer or writer, delivering advice and services may be a big part of your job. But what if your advice or services results in financial loss or damage to a client’s reputation? 

Professional indemnity insurance covers you for exactly those things. It can help cover the cost of claims of errors, omissions, negligence or breach of duty against your professional advice or services.  

Tax audit insurance  

Just like any other business structure, sole traders are required to file their taxes. In some cases, the ATO will request an audit to check that everything’s in order. 

Tax audit insurance can help with the costs of the audit, like accountant and tax agent fees. 

Business interruption insurance  

If something suddenly happens to your business and you can’t work for an extended period, business interruption insurance could help cover any lost income, business expenses, rent and other ongoing costs until you can get back on your feet.  

Examples of insured events include natural disasters, fire damage, floods and burglary. 

Personal accident and illness insurance  

Personal accident and illness insurance can provide financial support if you’re sick or injured and can’t work. 

It can be especially useful for sole traders who do a lot of physical work, like tradies. However, it might also be worth considering for those working at a desk, because Personal accident & illness insurance may also cover accidents and illnesses that happen outside work.  

Portable equipment insurance  

Many sole traders rely on different gear, tools and equipment to get the job done. A photographer wouldn’t be able to do their job without their cameras, and writers are completely reliant on their laptops. 

If those items were to get stolen, damaged or lost, portable equipment insurance could help cover the cost of repairing or replacing them. 

Cyber liability insurance 

As more and more sole traders incorporate digital tools and online platforms into their business, cyber liability insurance is becoming increasingly valuable – especially for businesses that collect and store client information on a digital system. 

Cyber liability insurance can offer financial protection in the case of different cyber incidents. For instance, if there were a cyber breach or attack and all that client information was compromised or stolen, cyber liability insurance could help cover data recovery expenses, legal fees and costs of notifying affected clients. 

Helpful tip from BizCover

It’s a good idea to review your insurance coverage at least once annually. What might have been enough when you first started out may not provide adequate coverage now. For instance, maybe you’ve begun offering new services, taken on more clients, bought new equipment or even started hiring people. Updating your insurance accordingly helps ensure you don’t encounter any unexpected gaps in your coverage.

What else should sole traders consider? 

Where can I find and compare business insurance? 

Right here! Our business insurance comparison tool with BizCover, lets you weigh up different policies from a bunch of Australia’s leading insurance providers. You can compare costs, features, exclusions, add-ons and more to find the right business insurance for your needs.