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Do You Need Sole Trader Public Liability Insurance?

Although not a legal requirement, public liability insurance is highly recommended for anyone who engages with members of the public and carries out work on their premises. The level of cover your policy needs to provide will depend on the nature of the work you do and will ensure that you are protected from financial costs arising if you are sued by a client, customer or another third party. Public liability insurance covers claims resulting from damage being caused to third party property or other people as a result of your work, including the cost of defending those claims in court if required.

Do sole traders need public liability insurance?

If you’re a sole trader considering starting your own business, or if you’ve been trading for a while and want to make sure your permits, licences and insurance affairs are in order, then you may be wondering about sole trader public liability insurance and whether or not you need it.

Read on to find out more about what it is and what it covers so that you can make an informed decision as to whether it’s a level of protection that you feel you should need in place as a sole trader providing services or products to others.

What is it and what is covered?

Public Liability Insurance is a type of insurance policy that can be purchased directly or through an insurance broker. It is designed to protect business owners, freelancers and self-employed sole traders if they are sued by a client, customer or member of the public.

Public liability insurance will cover the costs of your legal action and the compensation claims or settlement money that you may be ordered to pay as a result of being sued. Public liability insurance will protect you from expensive financial payouts if a third party is injured or their property is damaged when you are working in their home, office or business premises.

The insurance also covers medical costs incurred by the NHS which can be claimed back from your business in the event of an accident.

As a sole trader, if you are sued for causing damage to another person or their property, the costs to fix the wrongdoings and cover medical bills can quickly add up, but would all be covered by a comprehensive public liability insurance policy.

What isn’t covered?

There are plenty of different types of insurance policies that sole traders should consider taking out, but with so many to choose from, it’s easy to mix up what is and isn’t covered.

For the avoidance of doubt, when taking out public liability insurance, you should know that it doesn’t cover you for the following scenarios:

  • Injury to yourself or your employees
  • Damage to your property or place of work – you will need business insurance for this
  • If an employee sues you – you are legally required to have employers’ liability insurance if you employ more than one person.

As with any insurance policy, you will need to pay an excess in the event of any claims being made against your public liability insurance. You will select the excess amount at the time of purchasing your policy and this will be the amount you are required to pay yourself against the cost of any claim.

For example, if you have a claim for £3,000 but your excess is £300 then your insurer will pay out £2,700 and you would pay the initial £300 in the event of a successful claim.

If your business is likely to face claims of damage or injury from third parties, it’s easy to see how a public liability insurance policy can help to keep you in business.

Do I need insurance?

Insurance policy cover

With so many policies, regulations and licences governing how we work, it’s only natural to wonder which ones you will need as a sole trader and whether you need public liability insurance.

As public liability insurance isn’t a legal requirement, it is up to you whether you take it out. To make the right decision for you and your business here, you should consider the following things to decide if you need it or not:

  • Cost of premium vs benefit of cover in the event of a claim
  • Where you conduct your business
  • Is it important to your customers
  • If your clients insist on you having public liability cover before hiring you
  • Your ability to cover the costs of being sued without insurance cover

Cost vs benefit

It makes sense to weigh up the cost of the premium versus the likelihood that your work could result in a claim being made. Some sole traders will run businesses that are far more likely to result in accidents occurring than others. Electricians, plumbers, and hairdressers for example could all be seen as having a greater risk of causing damage to others and their property than selling pension advice.

Where you conduct business

For example, if you are a sole trader and your business involves a lot of public interaction such as a barber, selling baked goods, or you have physical premises where customers visit you, then you should strongly consider getting public liability insurance so you won’t have to foot a large bill in the event somebody sues you.

If you run a graphic design business from home, then you’re far more unlikely to cause damage to your client or their property in the process. You could still face a claim if visiting a client at their place of work and causing damage in the process though.

Is it important to your customers?

Some businesses and individuals will only engage with sole traders who can prove they have public liability insurance in place. Having this cover sends a message that you are reputable, care about your business and the people you engage with, and have taken steps to ensure that you are prepared in the unlikely event that an accident happens.

This can provide peace of mind all around that customers will not be unfairly penalised and having to foot large bills should your work cause damage or injury to them or their premises.

Is cover a requirement?

Aside from weighing up the risks based on your level of interaction with others when running your business, it’s worth being aware that public liability insurance can be a prerequisite for certain clients hiring you. Sole traders visiting public venues to perform are a good example of when this might occur and would mean securing a policy is a worthwhile investment for your business in the long run.

Can you afford to be sued?

As sole traders are not separated from their business like limited company owners, your personal and business finances are counted as the same thing. This means if you are sued, and you don’t have public liability cover, the legal costs that arise could not only wipe out your business profits but also your personal savings too.

If you do not have the cash, often tens of thousands of pounds available to cover an unexpected claim for damage made against you, you should ensure that you have public liability insurance in place, especially if your business involves interacting with members of the public face to face.

When should I get it?

Whether you’re just starting out with a new business venture, or have been supporting customers for years, public liability insurance can be taken out at any time. It’s a good idea therefore to make regular time to assess your business, its finances and recurring policies to ensure you have everything you need in place to stay protected and that current policies still provide the level of cover you need as your business evolves.

Regular assessment will ensure that you keep on top of your insurance policies as your business evolves and enable you to update insurance providers with any new information that might affect the validity of any future claims such as changes of address, change of business status or expansion of services delivered. You should also take time to check the standard policy wording to understand if all areas of your business activity are covered as standard or if enhanced policy options are needed.

Just like any other insurance, you won’t be able to take it out retrospectively to cover a claim already made against you, so it’s best to get your paperwork in order before you need to make any kind of claim.

How much does a policy cost?

The cost of professional indemnity insurance will vary based on:

  • The size of your business
  • The level of risk of causing damage to others and their property in your line of work
  • How much interaction do you have with the public
  • Where you conduct your work
  • The level of cover that is needed

The cost of a public liability insurance premium will be unique to your business, will depend on the kind of work that you do, and will be based on the level of risk involved to the other people and their property.

Sole traders with more public interaction will have a higher premium than those who work from home most of the time because the risk that they can be sued for causing damage to other people and their property will be higher.

Most policies provide cover from £1 million but can be boosted to provide cover up to £10 million or more. As a general rule, the bigger your business, the higher cover you should purchase.

You should discuss the level of cover you need with a reputable insurance provider and answer any questions they ask truthfully to ensure you have the correct level of cover. If you try to cut costs in the short term by opting for a cheaper policy, you may end up underinsured and regret it in the event of a claim further down the line.

When could a claim be made?

Nobody likes to think about causing damage to others but accidents do happen, and in some cases, there are situations that you would be liable to cover the costs for that you may not be aware of. Here are some examples of when public liability insurance could be useful in protecting against claims made against you.

Below are some examples of when professional indemnity insurance would be beneficial to electricians.

If you prepare and sell food to others that cause them to become ill. If your food is identified as the source of their illness, you could be sued and be required to cover the cost of any resulting medical bills or time away from work.

If you are a plumber and a faulty fitting or pipework you have installed comes loose and causes water damage to your client’s property or even an adjoining property, you could be sued and required to cover the cost of the damage caused and any legal expenses incurred.

Related questions

What other insurance policies do I need?

Insurance is all about managing risk, so every sole trader’s insurance needs will be different based on both their attitude to risk and the risks that are associated with carrying out their job for clients.

Your business insurance needs will also depend on the type of work you do, where work takes place, any assets owned by you or the business, turnover and if you employ other people.

For example, an electrician may want to take out more insurance than a home crafter as the level of risk to other people and property is much higher for electrical works.

Sole traders should consider their business activities and look into the following common insurance policies to see if the cost of the premium outweighs the cost of not having one in the event of something going wrong or claims being made against you.

  • Public Liability insurance
  • Professional indemnity
  • Product liability insurance
  • Employers liability insurance
  • Specialist insurance based on your type of work – this could be a legal requirement depending on what you do.

Summary

Sole trader public liability insurance and whether you need it, is a question that is often searched for online by self-employed tradespeople and service providers. Although public liability insurance is not a legal requirement for sole traders, it is highly recommended for anyone who engages with members of the public and carries out work on their premises.

Having the correct level of public liability insurance cover will ensure that you are protected from the legal costs and compensation claims that would arise should you be sued for causing damage to other people or their property whilst carrying out your work.

Although there is no legal penalty for not having public liability insurance, deciding not to take out cover could be something you later regret if you have to foot the cost of your own and a claimants legal bills, plus the compensation due, in the event of a successful claim being made against you.

For this reason, you should carefully weigh up if you need public liability insurance by considering all the factors covered above. If you make a mistake that causes damage to other people or their property whilst carrying out your work, you need to have the confidence that you have something in place, ideally insurance, to cover the costs of any claims that are made against you when this situation occurs.

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