Self-employed workers are not required by law to buy insurance in most cases, but they are wise to take at least some coverage out. There are scores of business insurance products on the market and not every self-employed person will need every one of them. But, depending on the work they do, there are some which are practically essential.
According to business insurance experts NimbleFins, a self-employed person absorbs the risks that would be taken on by a company if they were working for one. Self-employed and sole traders are not protected by the same legal defences as a limited company when it comes to money – while they keep all profits after tax, they also take sole responsibility for any losses.
Therefore, while a self-employed worker’s turnover and output may often be small, the risks are much higher to them personally so insurance can prove even more crucial than that for a big business.
Research by insurance providers Collective Benefits found nearly a third of so-called gig economy drivers, riders and couriers across Europe have no savings. This means they are particularly at risk without insurance.
What insurance is for self-employed people?
There is not one set self-employed insurance package, instead self-employed people can choose from a range of policies that are appropriate for them.
The types of insurance that might be suitable for the self-employed include:
- Contents insurance
- Public liability insurance
- Product liability insurance
- Professional liability insurance
- Employers’ liability insurance
- Cyber insurance
- Business use car insurance
- Tax and legal expenses cover
- Personal accident insurance
- Income protection insurance
- Business interruption insurance
Types of self-employed business insurance
Here we’ve written a brief explanation of the self-employed business insurance options mentioned above.
Contents insurance: Covering the cost of essential and valuable equipment if it is damaged, lost or stolen. If working from a business premises it can also cover furniture and furnishings. Stock insurance is usually an add on to this policy for an extra cost.
Public liability insurance: For any self-employed business that works in public or welcomes members of the public to their place of work. This insurance covers compensation claims and legal costs if a member of the public is injured or has property damaged and the business is blamed. It is one of the most popular business insurance policies, but is not generally needed for those who have no interaction with the public. However, if the self-employed worker does, even if that is by working in a public space or a customer’s house, public liability insurance can be important. Some industry bodies require public liability insurance, as do some customers.
Product liability insurance: This is similar to public liability insurance as it covers the legal and compensation costs of a customer being injured or having property damaged, but this time it is when the business’ product is to blame.
Professional liability insurance: This is a good safeguard for self-employed people who sell their expertise, service or give advice. It covers compensation and legal costs of customers who claim a mistake or negligence led to their business losing money.
This is not needed by every self-employed person. But it can be desirable if they handle a client’s sensitive or confidential data; do a creative job where a brief is open to interpretation and could be claimed that it hasn’t been met; give expert advice; or are asked by the client to have a policy. Industry bodies also often require this insurance as part of their membership terms.
Examples of business that are more likely to need professional liability insurance include architects, accountants, financial advisors, software developers, marketing and PR executives, web designers, photographers, builders and landscape architects.
Employers’ liability insurance: This is legally required for self-employed who hire most types of staff. It covers compensation and legal bills if a worker is injured or becomes ill as a result of the work they do. Often fellow freelancers are exempt from this cover, but it is worth checking whether they fall under any of the listed employers’ liability insurance exceptions from the HSE, explained by insurance experts NimbleFins.
Cyber insurance: Particularly useful for self-employed who rely on computers to do their job. This insurance is a package of safeguards that protects businesses from online-based risks, covering damage to – and lost income caused by – IT systems.
It can cover business interruption (where loss of earnings due to an incident is reimbursed), managing an attack, recovering lost data, notifying customers, and handling cyber extortion. There is also help on hand if a cyber incident, such as a virus, means private and sensitive data is lost or leaked. Cyber insurance is particularly important for self-employed businesses that take card payments online.
Business use car insurance: If a self-employed worker uses their personal car for business trips or as part of the work they do, they probably need to add business use to their car insurance. If they are in an accident while working, without business use car insurance they are basically driving uninsured. Staff can also be included on the same car insurance but the policy holder must inform their provider as it will probably trigger a higher premium.
Tax and legal expenses cover: Covering the legal bills associated with tax investigations, debt recovery, contract disputes 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.
Business interruption insurance: This covers an income shortfall or extra costs due to a disaster which leaves a self-employed worker unable to trade. Incidents such as fire, flood or storm which renders the work premises uninhabitable are covered. As is essential equipment breakdown – such as a sewing machine for a clothes designer, or a laptop for a writer.
However, not all disasters are accounted for with business interruption. Computer viruses are not generally covered – hence why many also take out cyber insurance. The coronavirus outbreak also hit businesses with insurers not extending their policies to include a pandemic.
