Sole trader small businesses make up around 60% of the Australian business landscape, and typically represent the simplest and cheapest business structure but, while there are low barriers to getting started, there are responsibilities and liabilities that you alone face if things go wrong. For example, bank loans for business use will usually rely on personal asset securities — assets which are also vulnerable if your business is sued for some reason, unless you consider the right insurance protection.

Key sole trader business risks and the insurance cover to protect against them

1. Your business's legal liabilities

If you provide a service or give your clients advice then considering professional indemnity proves its value if one of your customers is dissatisfied for whatever reason and makes a legal claim against your business.

Whether you are at fault or not, or if the case actually goes to court, professional indemnity insurance helps cover legal defence and settlement costs, as well as reputational damage control.

Similarly if members of the public have access to your business premises, or you do business off site or simply make deliveries, someone outside your business can hold you liable if they suffer an injury (including psychological impacts) or damage to their property that they believe is due to your business activities.

Public liability insurance protects you and your business against legal costs and what could be substantial damages arising from an incident you may be completely unaware of.

If your business includes selling items you have made or assembled product liability cover performs the same function in relation to any harm to customers due to a fault or malfunction in something that you sell.

2. Your and others' ability to work

With SMEs employing 70% of the Australian workforce, business owners in this sector carry big responsibilities for their workers — without a human resources department to oversee them. If as a sole trader you employ workers part time or on a casual or volunteer basis you might want to have workers' compensation insurance for those people in case they are injured or become ill as a result of business activities.

Bear in mind that workers' compensation doesn't apply to business owners so the most important person you may want to insure is yourself. There are a couple of options to consider: personal accident insurance which applies if your sustain an injury that prevents you from working or income protection insurance which covers you for disability, trauma and/or life insurance if you're unable to generate an income as the result of an incident occurring at or outside of work.

3. If the ATO investigates your business

One of the advantages to being a sole trader is that you may be able to offset some of your tax bill by claiming a loss against your business on other assessable income, such as from an investment property. It's also important to think about tax audit insurance to avoid taking a hit in investigative costs if the Australian Tax Office targets your business.

4. If something happens to your key assets

Especially if you use specialised tools or equipment, or your car is critical to your business, or you own your premises property insurance protects these valuable assets and investments, and can enable you to continue trading after a severe fire or theft.

5. If your business is targeted by cyber criminals

Also consider whether you could maintain your business if the information in your computer was hacked or held to ransom. While it may be the big name victims of cyber attacks that make the headlines, cyber criminals also target low hanging fruit: small businesses with limited cyber risk threat prevention.

As well as following best practice recommendations for patching software applications and installing updates as they become available, having cyber insurance can be invaluable for containing costs and accessing expertise in the event of a cyber incident.

Other business insurance protections for sole traders

The 5 forms of cover outlined above are some highly valuable and common insurance essentials that can prevent you from going out of business due to the expense involved in impacts or losses from unexpected events, but they're not the only types of insurance that apply to sole traders.

There are many optional extras or optional insurance covers for specific risks that are common and recommended, including

  • burglary
  • stock deterioration
  • damage to/theft of your electronic equipment
  • farm insurance
  • goods and/or property in transit
  • machinery breakdown

How a broker can help you with your business insurance

Working with a broker to understand your business can help you to identify the right insurances to mitigate your risks. We have Gallagher brokers nationally supporting over 120,000 small to large businesses, in all industries, to provide professional expertise.

Disclaimer

Gallagher provides insurance, risk management and benefits consulting services for clients in response to both known and unknown risk exposures. When providing analysis and recommendations regarding potential insurance coverage, potential claims and/or operational strategy in response to national emergencies (including health crises), we do so from an insurance and/or risk management perspective, and offer broad information about risk mitigation, loss control strategy and potential claim exposures. We have prepared this commentary and other news alerts for general information purposes only and the material is not intended to be, nor should it be interpreted as, legal or client-specific risk management advice. General insurance descriptions contained herein do not include complete insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. The information may not include current governmental or insurance developments, is provided without knowledge of the individual recipient's industry or specific business or coverage circumstances, and in no way reflects or promises to provide insurance coverage outcomes that only insurance carriers' control.

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