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Insurance guide for sole traders

Types of insurance sole traders should think about

DISCLAIMER: The information on this page is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation, or needs.

Sifting through insurance plans can be complicated, whether you’re looking to soften the blow of unexpected vet bills, or replace your gear if your car gets stolen.

For sole traders, there’s an added layer of complication; depending on your line of work, you don’t just need to protect your stuff, you need to protect yourself. Think of insurance as the lifebuoy on a yacht – you might not think about it while sipping bubbles on deck, but if Gazza falls overboard, you’re really going to need it.

But don’t worry – once you know what you need, sole trader insurance is pretty straightforward. There are five main types of insurance that cover most requirements, and plenty of bespoke options out there for more complicated occupations.

Whether you’re a tradie, a graphic designer, an NDIS worker, or a performing fire-eater, we’ll cover everything you need to know in this guide to insurance for ABN sole traders.

Already know what you need? Get a quote from our friends at BizCover.

Professional indemnity insurance. Personal liability insurance. Personal accident and illnes insurance. Get a quote

Why sole traders need insurance

For most independent earners, a sole trader business structure is the best option. Sole traders have far less business, financial, and tax administration, which means more time on the actual job.

But one of the biggest differences between a sole trader and a company structure is that sole traders ARE their business. Unlike companies, there is no separate entity shielding you from personal liability. What this means is that if the worst happens and your business is sued, you will personally be on the hook for damages.

But don’t worry – that’s what insurance is for. With the proper insurance plan in place, you can enjoy the similar levels of protection as if you’d incorporated a company, without all the hassle of actually, well, running a company.

📖 For more information, check our article on the pros and cons of companies vs. sole traders. You can also take our quiz to see which structure is best for your business.

Insurance also protects sole traders from losing income if they’re sick or injured. Whether you’re in a risky occupation, have a chronic condition, or are extremely accident-prone, a solid insurance policy helps you pay for the essentials while you rest up and recover.

It’s a bit like taking sick leave, only without needing to run it by your manager and log it in whatever HR app the kids are using these days.

Types of sole trader insurance

There are six main types of insurance sole traders need to know about when protecting themselves and their business. Here’s the tl;dr:

Now you’ve got the gist of them all, let’s take a closer look at each type of insurance.

Professional Indemnity Insurance

When you’re working for clients, you may be making decisions, delivering services, or creating things that can have a significant impact on your clients’ businesses. Should you be identified as the cause of a significant negative impact to another business, you may be held liable for the damages caused.

Professional Indemnity insurance can help provide cover for any damages, legal fees, and compensation you might be on the hook for – potentially up to millions of dollars, depending on your package.

It’s worth noting that the majority of Professional Indemnity insurance policies are only valid if you have cover at the time a claim is made. Even if you complete work for a client within the period you’re covered for, if the client makes a claim against you after your policy lapses, you won’t be covered by your Professional Indemnity policy.

Moral of the story: if you’re doing highly impactful work for major clients, make sure you renew your Professional Indemnity insurance regularly!

Good for: high-responsibility workers, or sole traders doing business with massive clients.

Public Liability Insurance

Unlike Professional Indemnity insurance, which specifically relates to impact caused to businesses and others you are working for, Public Liability insurance covers your impact on the general public. If any work you’re responsible for negatively affects members of the public, Public Liability insurance can help cover the cost of any legal action brought against you.

For example, if you were working in a theatre and failed to properly secure a piece of scenery that then fell on an audience member, and that person took legal action, Public Liability insurance could help cover some or all of the associated costs.

Public Liability insurance is provided in cover levels of $500k, $1m, $2m, $5m etc, and the level of cover you require will determine the cost of the policy.

Good for: sole traders whose work impacts or interacts with the general public (eg. in public construction and infrastructure, or public art and theatre).

Workers’ Compensation Insurance

This kind of insurance is one of the biggest areas of confusion for sole traders, so let’s get straight to the facts.

Workers Compensation insurance is designed for businesses who employ staff. It provides cover for employees in case they have an accident, or fall seriously ill, and can’t come in to work. Most sole traders don’t need Workers’ Compensation insurance because most sole traders don’t employ staff or subcontractors.

Note: The Workers’ Compensation equivalent for an individual sole trader is Personal Accident insurance.

But if you’re a sole trader who DOES employ staff, or you decide you need an extra set of hands in the future, you’re required by law to take out a Workers’ Compensation insurance to cover your employees and subcontractors.

Good for: ABN sole traders with employees or subcontractors.

Personal Accident Insurance

It’s basically Worker’s Compensation insurance, but for yourself.

Personal Accident insurance provides you with cover if you have an accident or injury that leaves you unable to work. It can help cover an agreed upon percentage of your income, and the cost of medical treatment related to that accident or injury (if not covered by Medicare).

Some insurance services (like our friends at BizCover) simplify sole trader insurance by including illness as well as injury in their Personal Accident policy. This means you won’t have to take out a separate Income Protection policy (see below). Basically, whether you can’t work due to an accident or a chronic condition, you’ll still be covered.

Good for: sole traders in physically risky occupations (or anyone who’s accident-prone).

Income Protection Insurance

If you have a chronic condition, a disability, or periods of poor health that leave you unable to work, Income Protection insurance is your best friend. This type of insurance can pay out up to 85% of your pre-tax income during periods where you aren’t working, so you can continue paying for all your essentials.

Policies generally come in two types: Indemnity Value policies and Agreed Value policies. Indemnity Value policies pay out a percentage of your total income at the time the claim is made, while Agreed Value policies pay out a percentage of an amount you agree to when you first take out the policy.

Agreed Value policies tend to be more expensive than Indemnity Value policies, but it might be worth it if you’re on a fluctuating income.

Good for: those with chronic conditions, a disability, or work-restrictive poor health.

Private Health Insurance

Getting Private Health insurance allows you to be treated in hospital as a private patient, and can cover the costs of certain treatments that are not traditionally covered by Medicare (such as optical, dental, and physiotherapy).

The value of the cover you’ll get access to, and what treatments are covered, will depend on the type and conditions of any Private Health insurance policy you take out.

Policies can be purchased from a registered health insurer, and you’ll need to keep up your payments in order for it to remain valid. Private Health insurance may even help you get access to some hospital services more quickly, and policies can have the added benefit of exempting you from the Medicare Levy Surcharge.

Sole trading made easy with Hnry and BizCover

As a sole trader, you’re solely (mind the pun) responsible for every aspect of your business. But you don’t have to go at it alone. Just like Hnry handles your tax, our partners at BizCover can handle all your insurance needs.

BizCover is an award-winning insurance service company designed with small businesses in mind. They know what insurance types are most common in your industry, and help find the right policy for you.

Get a free quote now by clicking the button below.

DISCLAIMER: The information on our website is for general educational purposes only. It doesn't cover all situations and circumstances, and shouldn't be taken as direct tax advice. If you're looking for specific help with your taxes, join Hnry and our team of experts can provide you with assistance tailored to your business needs.

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