The essential guide to public liability insurance for the self-employed

If you’re a sole trader, working as a self-employed professional or a small business owner, you have a lot to think about. Flying solo means juggling your day-to-day work with the additional pressure of running a business. It’s a lot, and it’s easy to let certain things slip, but insurance shouldn’t be one of them. 

As a sole trader, you’re responsible for compensating affected parties if things go wrong – such as someone tripping and injuring themselves in your workplace. Without insurance, a mistake or accident involving the general public could seriously affect your finances.

Thankfully, public liability insurance can offer financial protection in this type of situation. It’s something you should consider if:

• You work around the public in any way

• Clients visit your place of work, whatever that might be

• You visit clients at their homes or workplaces

Read on to find out what’s covered by public liability insurance and why it can be an important safety net for sole traders.

What is public liability insurance for self-employed people?

Public liability insurance offers financial protection if a member of the public sues you over an injury or damage to their property caused by your company’s activities.

When you operate as a sole trader, you get to enjoy all the profits, but you also take on all the risks personally. If something goes wrong, you can’t push liability onto your business (as you can when running a limited company). You’re personally liable – and your business accounts and personal finances are considered one and the same when it comes to any payouts.

If you don’t have the money to cover the costs of any successful claim in your business account, you have to use your personal assets to pay – that includes your house, savings, investments, etc.

Self-employed public liability insurance can offer sole traders an extra level of protection and reassurance to help shield their personal finances if something goes wrong at work. 

What does public liability insurance for self-employed people cover?

Essentially, public liability insurance covers legal and compensation costs incurred if you’re sued by a third party over injury or property damage resulting from your work. Third parties could include:

• People who visit your business premises

• People you visit in the course of your work

• Customers and clients

• Attendees and participants of events you’ve organised

Public liability insurance can also help pay for repairing or replacing another party’s damaged property or settling their medical fees. If you work with other self-employed people as part of your job, insurance may also cover you if you’re included in compensation claims made against them.

It’s important to note what’s not covered. Public liability insurance doesn’t cover:

• Any harm to your staff or equipment 

• General fines or penalties 

• The cost of correcting faulty work or products

If these are situations your business could face, you might need additional cover (see the What insurances do I need as a sole trader? section below).

Do I need public liability insurance if I am self-employed?

As with most other insurance, there’s no legal requirement to hold public liability insurance if you’re self-employed. However, it could be worth buying cover if you want to protect yourself and your finances against all eventualities. It depends on your line of work, and whether you interact with the public or not.

Bear in mind that public liability insurance for a sole trader can also be helpful in other ways. Trade bodies may require it as a condition of acceptance, for example. It also demonstrates stability to potential clients, which in turn helps you to get new work.

Organisations like local councils and large businesses usually avoid using self-employed people if they don’t have an adequate level of public liability insurance.

How much is public liability insurance for self-employed people?

The cost of public liability insurance depends on several factors. 

• Level of cover: Most policies allow you to opt for between £1 million and £10 million of public liability cover. This figure is the most your insurer will pay out for a claim. The more cover you have, the higher your premium will be.

• Client or trade needs: At times, it’s not up to you to decide how much cover you need. If relevant trade bodies or clients specify a minimum level, you must match it. The minimum for working with local authorities, for example, is usually £5 million.

• Your level of risk: If you rarely work with the public, or your work is unlikely to cause injury or damage, your insurer might consider you to be a low risk and charge less.

• Your insurance provider: Some insurers assess risk differently, and some prefer to work with specific kinds of businesses, so it’s worth shopping around to compare your options.

Public liability insurance, like any business insurance, counts as an allowable tax expense. That means you can deduct the cost of insurance when you work out your taxable profit.

How to get public liability insurance for self-employed people

Most insurance companies allow you to apply for public liability insurance online, and the majority of these offer you an instant quote once you’ve filled in an application. This helps you understand the cost before you buy the policy.

Don’t just think about the price. Check as many insurers and policies as you can to find the one that works for you. Think about cover level and policy specifics to find the one that best fits your needs. 

Although it may be tempting to spend less, be careful not to underinsure yourself. Relying on a policy that doesn’t meet your needs can be just as damaging as having no insurance at all.

What insurance do I need as a sole trader?

In terms of the law, sole traders only need insurance if they employ people or use vehicles, in which case they need employers’ liability insurance and suitable vehicle cover, such as van insurance.

However, depending on the type of business you run, you may be interested in other types of self-employed insurance to give your business even greater protection. 

For example, you could think about business interruption insurance, which protects you if unexpected events, such as a fire or flood, disrupt your business operations.

And if you’re unable to work due to illness or injury, income protection insurance can, in some cases, protect your cash flow with a regular income until you’re back on your feet. 

Depending on your business, you may also need:

• Employers’ liability insurance: If you employ people who aren’t close family members, you must have at least £5 million of employers’ liability insurance.

• Commercial van insurance: It’s a legal requirement for vehicles which use public roads to have insurance. If you have a work van, specialised van insurance covers you where private vehicle insurance does not.

• Professional indemnity insurance: If you are sued for negligent work, professional indemnity insurance helps cover any compensation you have to pay.

• Product liability insurance: If you supply, design or create a product which injures a customer or their property, product liability insurance can cover financial claims made against you. Public liability insurance sometimes covers issues caused by your products, but not always.