How Sole Traders Can Choose Insurance

Posted by mistyjhones on November 11th, 2020

According to one survey, there is over 60% of sole traders/ freelancers in Australia. In other words, many tradies and professionals are doing their business independently. 

However even with an organized business structure, everyone faces numerous risks, such as injury, damages, and litigious clients. 

Sole traders are more vulnerable to financial devastation as they are personally liable for damages or injuries caused by their business operations. If sued, they are at risk of losing their business assets and personal belongings to pay for damages or injury.  

If you work as a sole trader/ freelancer, you can minimize the risk by having suitable sole trader public liability insurance in place. 

Here are some tips on how you can choose suitable cover. 

Identify Your Insurance Options:

Firstly, it is advised to choose a suitable insurance cover to match your business activities.  Some of the key insurance covers for sole traders are personal accident insurance, public liability insurance, tool insurance, commercial motor insurance, and worker’s compensation insurance. 

Here is an overview of each insurance type:

Personal Accident Insurance:

Personal accident insurance is designed to provide financial assistance when a self-employed person is not able to earn an income because of injury or illness. This can potentially cover up to 70 per cent of your income. This is an important cover for any sole trader as they are solely responsible for earning an income. Unlike someone working in a company, they risk not being covered if something goes wrong. 

Public Liability Insurance:

Public liability insurance protects against costs and legal fees if a client or third party  sues for injury or property damages caused by your business activity. 

Tool Insurance:

Tool insurance may financially cover your tools and equipment from theft, damage, and loss. 

Professional Indemnity Insurance:

Professional indemnity insurance may cover damages, costs, as well as legal fees, should you be held liable for providing incorrect advice or leaking confidential information. 

It is important to choose coverage that will cover your risks. For example, if you are a trade contractor, public liability and income loss covers are important. However, if you are a professional providing advice for a fee professional indemnity is essential. 

Consider the Cost:

Once you know what policy you require, the next thing is to ponder over the cost. When you run on a small business, every dollar matters. However, while business insurance is an expense, it ensures financial protection from injuries, damages, and litigious clients. 

It can be tempting for a budget-conscious start-up business to simply choose the cheapest policy, but that may end up been a very expensive choice if you need to claim. In other words, cheaper policies may come with limited coverage or poor claims service. 

Instead, select the best combination of coverage and value in a policy which will cover all your business activities. 

Shop Around:

Shop around for insurance quotes. Compare them to find differences in coverage, inclusions, exclusions, and other things. It will assist in choosing a suitable insurance company to suit your requirement and budget. A good business insurance broker can help you find suitable cover at an affordable price.

Read the Fine Print Carefully:

Not all policies are the same. They are varied based on insurer wordings. Each insurer has its own limits, premiums, exclusions, and deductibles. Therefore, you should read every business policy carefully to understand what it covers and what it does not. 

Reading your policy thoroughly helps ensure there is no coverage gaps. This way, you are not met with any surprises in the event of a claim. 

Again, a good business insurance broker can help you understand the jargon and make an informed decision.

Consider the Excess:

Most business insurance policies come with an excess. This is an amount you pay out of pocket when a claim is filed for a loss. The rest of the amount is paid by the insurer. 

You may be tempted to pick a policy with a higher excess to pay a lower premium. This can be a wise strategy provided the excess is affordable for you if you need to claim.

Choose a suitable Insurance Provider:

Look for an insurance company with a positive reputation, good feedback from other sole traders, and above all, sound claim settlement processes. This can be achieved by going through online reviews as well as asking peers for recommendations. Working with the right customer-oriented insurance company minimizes hassles as well as simplifies the claim settlement process. 

What do you think? Let us know by commenting below!