What Insurance Do I Need as a Sole Trader?

When you're getting your sole trader business off the ground, insurance probably isn't the first thing on your mind. There are clients to find, a website to build, and about a hundred other things demanding your attention. But skipping insurance is a gamble that could cost you everything you've worked for.

One accident on a client's property. One unhappy customer claiming your advice cost them money. One stolen laptop with all your client data. Without the right cover, any of these could land you with a bill that wipes out your savings — or worse.

The good news is that sole trader insurance doesn't have to be complicated or expensive. Let's break down the main types, who needs what, and how to get decent cover without overpaying.

Do Sole Traders Legally Need Insurance?

Here's the short answer: it depends on what you do.

There's no blanket legal requirement for all sole traders to have insurance. However, there are situations where it's either legally required or practically essential:

• Employers' liability insurance is a legal requirement if you employ anyone — even part-time or temporary staff. You must have at least £5 million of cover from an authorised insurer.
• Motor insurance for business use is required if you drive for work purposes (your personal car insurance likely doesn't cover business use).
• Professional indemnity insurance is a regulatory requirement for certain professions, including financial advisers, solicitors, accountants, and architects.

Even where insurance isn't legally mandatory, many clients — particularly larger companies and public sector organisations — won't work with you unless you can show proof of adequate cover. So even if the law doesn't require it, your business might.

The Main Types of Sole Trader Insurance

Public Liability Insurance

This is probably the most common type of business insurance, and for good reason. Public liability insurance covers you if a member of the public (including clients) is injured or their property is damaged because of your business activities.

Who needs it?

If you ever interact with clients face-to-face, visit their premises, or have people visit yours, you should seriously consider public liability cover. It's particularly important for:

• Tradespeople (plumbers, electricians, builders, decorators)
• Personal trainers and fitness instructors
• Cleaners and gardeners
• Event organisers
• Dog walkers and pet sitters
• Anyone who works on client sites

What does it cover?

• Injury to a third party (e.g., a client trips over your equipment)
• Damage to third-party property (e.g., you accidentally damage a client's floor)
• Legal costs and compensation claims

Typical cost: £40–£200 per year for £1–5 million of cover, depending on your trade and risk level.

Professional Indemnity Insurance

Professional indemnity (PI) insurance protects you if a client claims your professional advice or services caused them financial loss. It covers the cost of defending the claim and any compensation you might have to pay.

Who needs it?

Anyone who provides advice, designs, plans, or professional services. This includes:

• Consultants and coaches
• IT professionals and web developers
• Graphic designers and architects
• Accountants and bookkeepers
• Marketing and PR professionals
• Writers, translators, and editors

What does it cover?

• Claims of negligence or professional error
• Loss of data or documents
• Breach of confidentiality
• Intellectual property disputes
• Defence costs (even if the claim turns out to be unfounded)

Typical cost: £100–£500 per year, depending on your profession, turnover, and level of cover.

Employers' Liability Insurance

If you employ anyone — whether that's a full-time assistant, a part-time bookkeeper, or even a temporary worker — you're legally required to have employers' liability insurance with a minimum of £5 million in cover.

This protects you if an employee becomes ill or is injured as a result of their work for you. Without it, you could face fines of up to £2,500 per day.

Important note: This applies even if you only hire someone occasionally. If you use subcontractors, check their employment status carefully — if HMRC considers them an employee, you'll need this cover.

Other Types of Insurance Worth Considering

Beyond the big three, there are several other policies that might be relevant depending on your business:

Contents and equipment insurance

Covers your business equipment — laptops, tools, cameras, machinery — against theft, damage, or loss. If you rely on expensive equipment to do your job, this is a no-brainer.

Cyber insurance

If you handle client data (and most of us do), cyber insurance covers you against data breaches, hacking, and the costs of dealing with a cyber incident. With GDPR fines potentially reaching millions, this is increasingly important even for small businesses.

Business interruption insurance

Covers your lost income if you can't work due to an insured event — like a fire in your home office or a flood that destroys your equipment. This is essentially income protection for your business.

Personal accident and sickness insurance

As a sole trader, if you can't work, you don't earn. Unlike employees, you don't get statutory sick pay. Personal accident and sickness insurance provides a regular income if you're unable to work due to illness or injury.

Product liability insurance

If you manufacture or sell physical products, product liability insurance covers you if a product you've supplied causes injury or damage. This is separate from public liability and specifically covers product-related claims.

How Much Insurance Do You Actually Need?

The level of cover you need depends on several factors:

• Your profession — Higher-risk trades need higher limits
• Your turnover — Larger businesses typically need more cover
• Client requirements — Some clients specify minimum cover levels in their contracts
• The value of your equipment — Make sure your contents cover reflects replacement costs
• Your risk tolerance — How much financial risk are you comfortable carrying yourself?

As a general starting point, most sole traders find that £1–2 million of public liability and £100,000–500,000 of professional indemnity provides adequate protection. But always read the policy details — the cheapest quote isn't necessarily the best value if it excludes key risks.

How to Get the Best Deal

Compare quotes

Never go with the first quote you receive. Use comparison sites like Simply Business, Hiscox, or PolicyBee to get multiple quotes in minutes. You can also speak to an insurance broker who specialises in small business cover.

Bundle your policies

Many insurers offer combined policies (sometimes called business packages) that bundle several types of cover together at a discount. If you need both public liability and professional indemnity, a combined policy is often cheaper than buying them separately.

Review annually

Your insurance needs change as your business grows. A policy that was perfect when you started out might not provide adequate cover two years later. Review your policies at each renewal and adjust as needed.

Don't forget that insurance premiums are an allowable business expense, which means they reduce your taxable profit. If you're a basic rate taxpayer (20% on income between £12,571 and £50,270), every £100 you spend on insurance effectively costs you just £80 after tax relief.

Read the small print

Pay particular attention to:

• Excess amounts — How much you pay before the insurer covers the rest
• Exclusions — What's specifically not covered
• Retroactive date — How far back your PI cover extends
• Notification requirements — How quickly you need to report a potential claim

Insurance and Your Business Records

Keep copies of all your insurance policies, certificates, and correspondence. You'll need to produce your employers' liability certificate if asked by an HSE inspector, and clients regularly request proof of cover before awarding contracts.

Store digital copies alongside your other important business documents. If you use a tool like Accounted for your bookkeeping, keeping your insurance records in the same well-organised system makes life much easier when you need to find them.

For more on keeping your business records in order, check out our guide on what records HMRC expects you to keep.

What Happens If You Don't Have Insurance?

Without insurance, you're personally liable for any claims made against you. As a sole trader, there's no legal separation between you and your business — which means your personal savings, home, and assets could all be at risk.

Even a relatively minor public liability claim — someone tripping over a cable at your market stall, for example — could result in a compensation claim of tens of thousands of pounds. Legal defence costs alone can run into five figures, even if you win the case.

Insurance provides peace of mind. It's the safety net that lets you focus on growing your business without worrying about the "what ifs."

Wrapping Up

Getting the right insurance doesn't have to be a headache. Start by assessing your genuine risks — think about the worst-case scenarios for your particular business and make sure you're covered for those. You don't need every type of policy under the sun, but going without any cover at all is a risk most sole traders simply can't afford to take.

Take an hour this week to review your current cover (or get quotes if you don't have any). It's one of those tasks that feels tedious but could save your business one day.

Accounted helps UK sole traders stay on top of their bookkeeping and tax. Start your free 30-day trial at getaccounted.co.uk.

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Related reading:

• The Complete List of Sole Trader Expenses You Can Claim
• Business Insurance Guide for Sole Traders
• How to Register as Self-Employed with HMRC

Related Reading

• Welsh Language Business Obligations — What You Need to Know

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