This is a concern that’s familiar to thousands of start-ups across the country, as more and more people try their hand at going it alone. New company start-ups in Ireland exceeded 20,000 in 2016 for the first time in almost 20 years, a trend that is mirrored among sole traders.
For this reason, more business owners than ever are scratching their heads trying to figure out what kind of small business insurance they need to cover their legal obligations. The options can be confusing if you’re new to the game but, with a little research, organising your insurance can be straightforward.
What is a Sole Trader?
Before going any further, it’s important to define what a sole trader is. The term normally refers to self-employed people who run their own businesses, businesses that have been set up within the sole trader legal structure. This means that the owner lays sole claim to all profits and losses the business makes. The category is so broad that almost two-thirds of business people in Ireland can be categorised as sole traders.
That said, plenty of companies that could be classified as sole traders aren’t registered as such. Many self-employed people, such as freelancers, for instance, prefer to set up limited liability companies instead. Likewise, many sole trading businesses employ workers. As you can see, the category is flexible.
Sole trader status comes with significant risks, which is why many people choose instead to form a limited liability company. When you operate a business as a sole trader, its liabilities and debts are your liabilities and debts. 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 buy insurance. The first is to cover themselves against potential risks, and the second is because their industry - or clients - require them to. Insuring your business against unforeseeable circumstances such as natural events, theft and accident or legal liability can be important if you are dealing with expensive equipment, such as computers or tools.
If you’re looking for peace of mind, there are dozens of packages to suit your needs. A good place to start would be personal accident or income protection, which will cover you if you’re unable to work following an accident. If you want to cover yourself against claims from others, consider professional indemnity insurance, public liability insurance – and employers liability insurance if you have employees.
As regards industry expectations, many contractors require freelancers to be 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 fall into one of these categories, look at what kind of insurance your client requires. Make sure you satisfy the rate of coverage needed to start working with them. Armed with this information, you can begin to shop around for the best price.
Besides attracting new clients, having correct cover sets you apart from business owners who don’t. It creates a professional impression, and will spare you countless headaches later on.
Things to Consider
Before taking the plunge and buying a new insurance plan, there are a number of factors to consider. The most important of these is to plan for the worst-case scenario. If you’re overly optimistic, you’ll be in trouble if your insurance cover falls short.
If, for example, you want to be fully protected against fire, you should buy coverage up to the amount that would replace all the equipment on the premises. (Buildings insurance would also be a good idea). Likewise, if someone were to sue you, get cover against the worst possible outcome. In practical terms, this means if you’re an electrician, you cover yourself against starting a fire or injuring a client. If it’s a reasonable possibility, insure against it.
Likewise, get enough liability insurance to cover your legal liability in respect of any contracts you are party to. Liability insurance cover can be bought for amounts up to €13 million. Depending on the size and scope of your business, more expensive options may be advisable to make sure that your cover is adequate.
If you work from home, you’ll need to carefully consider your options. Many homeworkers make the mistake of thinking that home insurance will cover work-related items, such as laptops. However, often that’s not the case. Check your home insurance policy to see if you’re covered. Make sure your home insurers are aware of business taking place on the premises, and business callers to your home. If you find you’re not covered, buy a business insurance policy.
Lastly, remember that your liabilities tend to be directly proportional to the size of your contracts – although 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 contracts, the greater your potential liability. If you’re handling a load of stock for a large company that gets damaged in transit, you could easily be liable for a significant sum. A solid insurance plan will protect you in such situations.
Take Your Time
Above all else, take your time. Running a business as a sole trader can be incredibly rewarding once you’re equipped with the proper insurance. No two businesses are the same, so take the time to consider your unique requirements. If you’re confused, assess your contracts and compare your cover with that of others in your industry. Seek advice too; insurance brokers will be only too happy to help.
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 can help put your mind at ease, freeing you up to concentrate on running your business instead of worrying about losing your shirt.
