In recent years we’ve seen quite significant growth in the number of people in the UK becoming self-employed. While the pandemic reduced numbers somewhat, there were 4.31 million self-employed people in April to June 2023.
Whether it’s a lack of job availability, the desire for more freedom or the technological advances making remote working easier, it’s clear that the traditional 9 to 5 is no longer the norm for everyone.
1 minute summary - What insurance do I need to be self-employed?
- The insurance you need for your business will depend on a number of factors including whether you are a sole trader or you employ people; whether you have shareholders in the business and whether you have members of staff who are pivotal to the running of the business
- You can protect the people in your business with specific insurance products such as keyman insurance, shareholder protection insurance and relevant life insurance
- You can protect against liabilities with employer liability insurance and professional liability insurance
- Additionally, you can protect your business assets by taking out buildings and contents insurance and you can protect your revenue with credit insurance
- Speak to an independent business insurance specialist* who can provide independent advice and tailored quotes based on your exact business needs
Being self-employed is exciting, you have control over your career, the flexibility to choose when you work and where you work, and the opportunity to earn money doing something you love. But going solo is not without its risks. In the absence of protection and support from an employer, you may face a number of large financial risks being self-employed. But there are insurance products available to help mitigate these risks.
In this article we look at all aspects of self-employed insurance, and answer the following:
- What is self-employed business insurance and do I need it?
- What are the different types of self-employed business insurance?
- Do I need public liability insurance if I’m self-employed?
- If I’m running a business from home do I need business insurance?
- What personal insurance do I need if I’m self-employed?
- How much does self-employed business insurance cost?
- How do I choose the right insurance policy for my business?
After reading the article you will be better informed and at that point we suggest that you speak to an independent business insurance specialist, such as Lifesearch, who can help you take the next step. LifeSearch* has an average Trustpilot score of 4.9 out of 5 from over 21,000 customer reviews and its services have also been vetted by us personally. If you complete the website form (via the aforementioned link) a LifeSearch adviser will give you a call when it suits you, with no obligation on your part whatsoever.
What is self-employed business insurance and do I need it?
Self-employed business insurance products are there to protect you and your business financially should the worst happen. They can protect you against the obvious things like damage or injury at your business premises or property, but they can also mitigate other less obvious, risks, such as being sued by a client or the loss of a key member of staff.
If you are self-employed you will almost certainly need some insurance for your business, but the exact product will depend on a number of factors:
- If you employ people
- Whether you have shareholders in the business
- If you have any members of staff who are key to the running of the business
- The assets belonging to your business, perhaps offices or machinery
- The type of business you’re running and what products and services you provide
What are the different types of self-employed business insurance?
There are lots of different types of insurance for self-employed people that can be categorised into those that protect assets, those that protect revenue, those that protect against liabilities and those that protect people.
Protecting your assets
Buildings and contents insurance
In the same way that buildings and contents insurance protects your home and your personal possessions, this product can cover the cost of damage to your business or the loss of assets belonging to your business. This could be damage to any buildings due to natural events or theft of business property. Whilst buildings insurance for your business premises is not mandatory, if you have a mortgage your lender may require cover to be in place.
Protecting your revenue
This product protects your business should a client fail to make a payment to you, for example they may have gone bust and become unable to pay, or perhaps they just can’t pay in time. If the income from a client is crucial to business continuity you may wish to consider this type of business insurance.
Protecting against liabilities
Employer liability insurance
If you employ individuals within your business you are legally obliged to have employer liability insurance. Most businesses are required to have at least £5 million of employers’ liability cover in place, without which you could face heavy fines. This insurance covers the cost of legal fees and compensation should an employee make a work-related illness or injury claim.
Professional liability insurance
If you offer advice or certain services you may need professional liability insurance. This product covers the cost of compensation and legal fees should your client suffer a financial loss due to a mistake made by you or someone who works for you. The last thing any business wants is a dissatisfied customer, but unfortunately mistakes can happen. Key professionals that should consider this type of insurance are financial advisers, lawyers, doctors and accountants, to name just a few.
Protecting your people
This product is useful if the loss of a specific employee or employees would harm the business. This could be a director, a top sales employee or someone with specific skills without whom the business would suffer a significant setback. Keyman insurance works to reduce the financial impact should the individuals, that are essential to the running of your business, become unable to continue working due to ill health or death. This product can cover the cost of hiring a replacement, bringing in a temp, or can make up for any loss in revenue.
You can read more about keyman insurance in our article, “What is keyman insurance – how much is it and who should get it?”
Shareholder protection insurance
If the ownership of your business is split among a number of individuals you may need to consider purchasing some shareholder protection. In the event that a shareholder dies, his or her shares will most likely pass to their beneficiaries, usually their family. In order for the remaining shareholders to maintain full control of the business, they will need to buy back those shares from the beneficiaries. This insurance product will pay out a lump sum of money so the remaining shareholders can do just that. This product can also include critical illness insurance so it would pay out if any of the shareholders develop a critical illness that means they can’t work.
If you’d like to know more about shareholder protection, you should read our article, “What is shareholder protection? – complete guide on the benefits and costs.”
Relevant life insurance
Relevant life insurance is like a normal life insurance policy, however the business pays the premiums rather than the individual. You can take out a relevant life policy for yourself, which your business pays for, and should you die, the policy will pay a set lump sum to your family. It’s very similar to a death in service benefit, and can also be offered to your employees. A relevant life policy is a tax efficient way to give your family a lump sum should you die and is an employee benefit that helps employers to attract and retain the best talent.
If you’d like to know more about relevant life insurance, and the benefits this product can offer do read our article, “What is relevant life insurance and should you have it?”
Do I need public liability insurance if I’m self-employed?
There is another self-employed liability insurance which some individuals choose to take out and that’s public liability insurance. Self-employed public liability insurance protects you if a customer or member of the public gets physically harmed or their property is damaged due to any of your business activities. This could be anything from a customer getting food poisoning in your restaurant, to a member of the public tripping on a corner of upturned carpet in your office. In these scenarios, the person harmed could submit a claim against you and your business, and that’s where public liability insurance comes in to cover the legal fees and any compensation owed to the individual. It’s also possible to get freelance cover to protect you if you’re visiting customer homes or external business premises and could cause damage to their property.
Self-employed public liability insurance is not legally required for most businesses but is considered necessary if people visit your business premises. Saying that some customers may demand that you have some public liability cover, simply so they know that they’re protected. This might be the case if you run an outdoor adventure company, for instance, where your customers could easily become harmed while partaking in the activities that you run. Some companies will also request that their suppliers have some public liability insurance in place.
The premium you will pay for your self-employed liability insurance will vary depending on a number of factors, such as:
- The type of business you run – if your business uses dangerous equipment or machinery the risk of injury is higher and therefore the insurance will cost more.
- Your annual turnover – the larger your business the higher the level of cover required and therefore the more expensive your insurance will be.
- Your business premises – If members of the public and customers visit your office there is a higher risk of harm or damage to property, which could lead to a claim. Therefore the higher the footfall the more expensive the public liability insurance will be.
If I’m running a business from home do I need business insurance?
Working from home has never been so easy thanks to the technological advances we’ve seen over the last few years. Many self-employed individuals opt to make their home their main place of work, particularly if they work alone, cutting down costs associated with renting or owning an office. This also gives the added benefit of improved family time and a better work life balance.
If this is you, you may think you don’t need any business insurance because your home insurance will cover everything. This might be true, but you will need to inform your home insurer that you will be working from your house. They may ask what form your business will take, whether you have new additional business equipment within the home and whether clients will be visiting you there. Your insurer may be happy to extend your normal buildings and contents insurance to cover this change in the use of the property, possibly increasing your premium to reflect any additional risk. It’s always important to inform your existing insurers of changes like this to ensure that if you ever need to claim you will receive the payout you expect.
While your home insurance may cover your business from an asset perspective you may still need to consider protecting your revenue, any employees and any unforeseen liabilities, as mentioned above.
What personal insurance do I need if I’m self-employed?
Being self-employed gives you freedom and puts you in control of your earnings, which is one of the main attractions for people who take the leap from employed work to becoming self-employed. But with high reward comes higher risk. The results of the business will impact you directly, if things are going well and profits are high you will earn well, but on the flip side, if you’re struggling to win business, profits may drop and your income will be hit. This could prove difficult, especially if you have a family to support who are reliant on the regular income from your business.
Within reason, business success is in your control, however things can happen which are out of your control and could have a huge impact on the success of the business and your income. What if you couldn’t work due to illness or death? Could the business operate without you? How would your earnings be affected? How long can your family survive financially without your income?
We’ve already mentioned relevant life insurance that is a tax efficient way to protect your family financially should you die. But you might also want to consider purchasing some critical illness insurance which will pay you a lump sum amount of money if you become seriously ill. You can use the payout as you choose, perhaps to replace your lost earnings and ensure your family can pay their regular bills, or perhaps to pay the salary of a temporary replacement to run the business in your absence.
Income protection insurance is another useful product that can replace your earnings if you become too ill to work. You can choose levels of cover that would pay you each month for up to a year, 2 years, 5 years or with the most comprehensive version, ensures these payments will continue until either you return to work, your policy ends or you die. This product is particularly important for self-employed individuals who will be without any employer sick pay should illness strike.
One benefit some employees receive from their company is private medical insurance, a highly valuable benefit that covers the cost of private medical treatment. If you’re self-employed you may wish to consider purchasing this insurance as it can facilitate much faster treatment, resulting in a quicker recovery and minimal business disruption. You may have to join long waiting lists for minor medical interventions through the national health service even when these are causing significant impact to your ability to run your business. It’s possible to set up small group schemes which will also provide cover to your employees.
How much does self-employed business insurance cost?
Self-employed insurance costs vary greatly from business to business. The higher the risk, and therefore chances of claiming, the higher the premium will be. There are many things to consider, from the age and health of the individuals you are looking to insure for key man and shareholder protection, to the size of the business and type of business, when considering liability insurance.
To give you a rough idea of costs, AXA quote that 10% of their business insurance customers pay the following each year:
- Public liability insurance from £59 a year
- Employers’ liability insurance from £47 a year
- Professional indemnity insurance from £48 a year
How do I choose the right insurance policy for my business?
Every business is different and your needs as a self-employed individual will differ to those of others’. The world of business insurance is quite complex because there are so many products available, making it tricky to work out which is right for you and your circumstances. Getting guidance about the best public liability insurance for self-employed individuals? Which insurer should you go with?
It’s important to speak to an expert business insurance specialist who can assess your needs and analyse the market to find the best products for you and your business. We have vetted the services of LifeSearch*, an independent business protection specialist, which is highly rated by its customers (scoring 4.9 out of 5 on Trustpilot from over 21,000 reviews), who can help. All with no obligation on your part to take things further.
If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses and do not wish to qualify for the cashback referred to in the article – LifeSearch