What Insurance Does a Sole Trader Need

Most tradies are aware that the simplest and fastest way to strike out on their own in a trades business is by using the sole trader structure. Many tradies start as sole traders, and it can work well, but know what you're taking on.

What is a sole trader?

A sole trader is a person who runs a business on their own. You use your own tax file number for the business, and you're legally responsible for all of it, including its debts and losses (business.gov.au, Sole trader). As a sole trader, the buck (quite literally) stops with you.

Three misconceptions about sole traders

Before you can research insurance cover for sole traders, it is smart to clear away some misconceptions about the business model.

1. The phrase sole trader is not a blanket title. The term sole trader does not refer to any tradie who operates on their own. It is a specific structure of a business. For example, a landscaper starting out can trade as a sole trader or set up a Pty Ltd company. As a sole trader, they and the business are the same entity and use their own tax file number. A Pty Ltd company is a separate entity with its own tax file number.

2. As a sole trader, you can have staff. Many people believe that those with a sole trader business structure must work alone. It is not a typical practice but employing staff as a sole trader is acceptable and legal.

3. Your sole trader business can (and in some cases should) have a name. Because you and your business are the same entity for tax purposes, it is easy to become confused about giving your business a name. Should you choose to name your business, registering the name is a must in Australia. On legal documents, include both your name and your business name.

For example: Jo Citizen trading as Citizen Landscaping, or Jo Citizen t/as Citizen Landscaping.

Does my insurance as a sole trader matter as much as that of a Pty Ltd company?

Insurance matters for every business, and maybe more for a sole trader, because you and the business are the same in the eyes of the law. If the business owes money or is sued, it's on you, and your personal and family assets can be at risk. Insurance can help protect them if something goes wrong, depending on the policy.

What types of insurance should a sole trader consider?

Numerous types of insurance can be valuable for some sole traders. These tend to be specialised, and an insurance professional can explain if these are useful for your business. Here are four covers many sole traders ask about.

Public liability insurance

Public liability insurance can cover claims from other people if your work injures them or damages their property, up to the limit in the policy. Head contractors and clients often ask for it before you start. However careful you are, accidents happen.

Personal accident and illness cover

Personal accident and illness cover is not business insurance as such, but it matters to sole traders. Generally, sole traders do not have protection to help them if they are unable to work for an extended period. Personal accident and illness cover can pay a weekly benefit if an injury or illness stops you working. How much, and for how long, depends on the policy.

General property insurance, also known as tool insurance

Where would you be if you suddenly had no access to your tools? Tools left in a ute or on site are a target for thieves. Tool insurance can pay to repair or replace tools that are stolen or damaged, up to the limits in your policy.

Commercial motor insurance

Insuring vehicles can be a complicated matter for sole traders. Many tradies use their ute or van for work and private driving. A private car policy may not cover a vehicle used mainly for business, or the racks, shelving and signwriting you've added, so tell the insurer how the vehicle is used and what's fitted to it. A broker can compare commercial vehicle insurance policies from insurers and help you choose. If you have staff, remember that employers must have insurance to cover their workers if they get sick or injured because of work (Safe Work Australia).

What a policy covers depends on its wording, limits, excesses and exclusions, and the insurer decides whether a claim is paid, so read the PDS (product disclosure statement) or policy wording before you decide.

To compare sole trader insurance for your business, contact us at Tradies365. Our brokers can help you choose cover for your personal and professional assets.