Do I Need Public Liability as a Sole Trader?

Public liability insurance is designed to protect businesses against claims for accidental injury or damage to third parties due to business activities where you are at fault. However, do you need public liability as a sole trader?

This type of insurance can be particularly important if you’re a sole trader. It could help to shield you from potentially crippling financial claims. Unlike larger businesses, sole traders don’t typically have the money to pay significant legal and compensation costs out of pocket. That’s where public liability insurance comes in.

What is public liability insurance?

Public liability insurance protects businesses from financial and reputational loss. If an accidental injury or property damage occurs to a third party due to negligence whilst carrying out your business activities. Public liability covers legal defence costs and any resultant court awards.

For example, if a customer slips in a shop or a contractor damages a client's property (excluding property in your custody or to a specific item whilst being worked upon). The insurance can cover the resulting claims and legal fees. This kind of cover is important for safeguarding your business’s assets. It may mean you aren't hit too hard financially in the event of an accident.

Legal requirements for sole traders

While public liability insurance is not legally required if you’re a sole trader in most industries, it’s highly advisable. Without this insurance, your personal assets such as your home and savings are at risk if a claim is made personally against you.

Regardless of it not being law, many clients and contracts might want proof of public liability insurance before engaging in business with you. Either way, it’s an important and easy way to protect yourself from potentially devastating financial claims.

Assessing the need for public liability insurance

The need for public liability insurance varies across industries due to different levels of risk. In construction higher risks and hazards are presented by those involving activities at height or depth or processes involving the application of heat or work at hazardous locations such airports, stations, ports, power stations or bridges.

Public liability risks are increased for businesses working on high rebuild values properties and/or those occupied by finance, high tech or industrial businesses. As are the increased risks of accidental bodily injury when working properties involving larger accumulation of people such as at cinemas, concert venues, sports stadiums, schools, hospitals and hotels etc.

Lower-risk industries like consultancy or digital services usually interact less directly with the public. thereby reducing the likelihood of potential claims. However, unexpected incidents can happen even in low-risk sectors. Public liability insurance should be a consideration for all sole traders to lessen any financial risk

Consultancy and businesses in IT sectors are not immune from claims from third parties arising from negligence. They are still at higher risk of claims for breach of professional duty arising from poor or incorrect advice, errors and omissions. Such businesses, whilst still requiring public liability, will need to consider arranging professional indemnity insurance.

Client expectations

In many industries, clients expect sole traders to have public liability insurance before signing contracts or entering job sites.

For example, in construction, contractors often need to show proof of public liability insurance to work on projects. Clients want assurance that any potential accidental damages or injuries will be covered.

Similarly in event planning or catering, venues and clients usually require insurance to protect against any incidents during the event.

Financial protection

As a sole trader, the financial consequences of claims against you can be severe. They could even directly threaten your personal finances.

Sole traders have unlimited liability and potentially at risk if anything goes wrong, placing their personal assets such as their home, savings and investments at risk if the business faces a claim.

If a customer is injured on your premises and sues for medical costs and damages alleging you to be at fault, then the financial burden could be substantial. Without public liability insurance, you would be responsible for covering these costs out of pocket.

Cost considerations

The cost of public liability insurance varies based on several factors. These include industry, business size and claims history. High-risk industries like construction or events typically face higher premiums due to the increased chance of accidents.

Business size also influences cost. Businesses with a higher turnover of greater numbers of staff will usually pay more. A history of claims can also increase premiums, as insurers view these businesses as riskier.

On average, sole traders might pay anywhere from £50 to £500 annually, but this can vary. It's important to compare quotes from different providers to find the best coverage for your specific business needs.

How to choose the right policy

Choosing the right public liability insurance policy involves several key steps:

1: Coverage limits

Decide the right coverage limits based on your industry and potential risks. Check your client contracts for any minimum insurance requirements. Think of the types of properties you work on, the rebuild values of the properties and how any businesses within the buildings can be affected due to negligence on your behalf. Consider the maximum amount you might need to cover a worst-case scenario.

2: Policy exclusions

Common policy exclusions include deliberate damage, contractual liabilities or specific high-risk activities. Ensure that the policy aligns with your business needs.

3: Compare quotes

Get quotes from multiple insurers to compare costs and coverage options. Look for reliable insurers with good customer reviews.

4: Consult a broker

If you’re unsure, consider consulting an insurance broker. They can give expert advice to help tailor a policy to your specific needs.

Case studies and examples

Sarah's landscaping business

Sarah runs a small landscaping business as a sole trader. Without public liability insurance, she completes a job at a client's property where a large tree branch falls and damages the client's car.

The client demands compensation for the repair costs, amounting to £4,000. Without insurance, Sarah is personally responsible for the damages. Unable to afford the payment, she faces legal action and her personal savings and assets are at risk.

James's electrical contracting business

James runs an electrical contracting business. He invests in public liability insurance. While working on a project, one of his employees accidentally damages a client's expensive equipment.

The client files a claim for £5,000 to cover the repair costs. Thanks to his insurance, James's policy covers the claim, including legal expenses. The result is very little disruption to the business and his personal finances are protected. Its important to remember that public liability insurance pays for the consequences of poor workmanship. It is not a guarantee of your work, therefore the costs to put right incorrect work would be yours.

Public liability insurance from Towergate

We offer public liability insurance, and it can be incredibly helpful for sole traders, offering financial protection against potential injury or damage claims. When considering your coverage needs, look at the risks associated with your industry. Take into accounts factors such as business size and claims history.

Costs vary, but the investment can be wise if you want to protect your personal finances. Prioritising insurance could eliminate a potentially devastating hit from legal claims.

Get a public liability insurance quote

If you need to, talk to an insurance professional to find a public liability policy tailored to your business. Get a quote today, either online or by phone on 0330 818 9929.

About the author

Alison Wild BCom (Hons), MAAT, MATT, Taxation Technician is a highly respected industry professional who has been working with and advising SMEs in areas including tax, pensions, insurance and marketing for over 25 years. She is a member of the Association of Accounting Technicians (AAT) and Association of Tax Technicians (ATT) and also has 20 years' experience as a residential landlord.

The information contained in this article is based on sources that we believe are reliable and should be understood as general information only. It is not intended to be taken as advice with respect to any specific or individual situation and cannot be relied upon as such.