CRIF Vision-net records show that the number of start-ups established in 2023 exceeded 22,500, highlighting that many people are making the decision to start their own business.
When starting your own business, you will need to weigh up the pros and cons of operating as a sole trader versus forming a company. Once you’ve decided this, you’ll need to figure out what kind of small business insurance you need to cover your legal obligations. The options can be confusing if you’re new to the entrepreneurial game and that’s why we’ve written this article to help you discover the type of insurance that a sole trader needs.
What is a Sole Trader?
First of all, let’s define what a sole trader is. A sole trader is a self-employed person who is the sole owner of their business. To become a sole trader, you must register as a self-employed person with Revenue. This will set your business up within the sole trader legal structure.
A sole trader lays sole claim to all profits and losses the business makes, so the business’s liabilities and debts are your liabilities and debts. Operating a business as a sole trader comes with significant risks as if the business fails with outstanding debts, not only will you lose your income, you could also lose your home and face bankruptcy.
Why do Sole Traders need insurance?
Generally, there are two main reasons why sole traders need insurance. The first reason is to cover themselves against potential risks. It’s important to insure your business against unforeseen circumstances such as natural events, theft and accident or legal liability. This is especially important if you are dealing with expensive equipment, such as computers or tools. Another insurance option that will give you peace of mind include personal accident insurance which will cover you if you’re unable to work following an accident. To cover yourself against claims from others, you can consider professional indemnity insurance and public liability insurance.
The second reason is because the sole trader’s industry or client requires them to have insurance. Many contractors require that freelancers are insured to work on their projects. Smaller businesses that deal with sensitive data often expect insurance, just as large businesses and local authorities will commonly expect sole traders to have professional indemnity and public liability cover. If you need insurance to work in a specific industry or for a client, you should take a look at what insurance is required and ensure that you satisfy the rate of cover needed to start working. Having the correct insurance cover will create a professional impression and set you apart from other business owners who don’t.
Small business insurance considerations
Before taking the plunge with a new business insurance policy, there are a number of factors to consider. The most important factor is to plan for the worst-case scenario. If you’re overly optimistic about your situation, you may end up in trouble if your insurance cover falls short in the event that you need to make a claim.
For example, to be fully protected against fire, you should cover the amount that would replace all of the equipment on the business premises. Or, to protect yourself against someone suing you, you should get cover for the worst possible outcome. So, in practical terms, if you’re an electrician you should cover yourself against starting a fire or injuring a client. In essence, if it’s a reasonable possibility, you should insure against it.
Another consideration is to ensure that you have enough liability insurance to cover your legal liability in respect of any contracts you are party to. You can get liability insurance for up to €6.5 million . However, depending on the size and scope of your business, additional cover may be required to ensure that the level of cover is adequate.
If you work from home, one consideration to keep in mind is to check whether your home insurance policy covers work-related items, such as laptops. You should check your home insurance policy to see what’s covered under your policy. Some contents insurance policies will cover home office equipment, however, this will be dependent on your insurance provider.
One last consideration is that your liabilities tend to be directly proportional to the size of your contracts. However, it’s important to remember that government bodies require a €6.5 million public liability limit of indemnity for any contract, regardless of the size of the job. In general, the larger and more lucrative the contract, the greater your potential liability. For example, if you are handling a load of stock for a large company that gets damaged in transit, you could be liable for a significant sum. The right level of insurance cover will protect you in such situations.
Do your research
Above all else, take your time and research your insurance options. Running a business as a sole trader can be incredibly rewarding once you’re equipped with the proper insurance policy and cover. No two businesses are the same, so take the time to consider your unique requirements. If you’re confused about what insurance policy is the best option for you, you should assess your contracts and compare your cover with that of others in your industry. You could also seek the advice of an insurance broker, they will be able to advise you on which policy would suit your business’s needs best.
As a sole trader, you can’t avail of limited liability, so having a comprehensive insurance plan in place is a must. Luckily, there’s no shortage of insurance providers and comparison sites to help you to weigh up your options. Knowing you have the correct cover for your industry and contracts can help put your mind at ease, freeing you up to concentrate on running your business instead of worrying about losing your shirt!
