What self-employed insurance do I need?

If you’re a sole trader in the UK, liability and personal finance insurance are a must — especially now that more people are opting to work for themselves rather than for a business.

And while life as a freelancer might be flexible and full of freedom, it also comes with the need to manage everything on your own and be personally responsible for your debts and liabilities. 

Freelancers don’t get the typical benefits that company employees do, which is why the right insurance is crucial to protect your income and livelihood.

In this guide, we’ll explore the main types of insurance for sole traders, the typical costs involved, and how to choose the right cover to protect yourself and your business with confidence.

What is self-employed insurance?

Self-employed insurance is a type of cover that protects people who work for themselves — like freelancers, contractors, and sole traders — from the financial risks that come with running their own business. 

Having the right insurance can help cover things like:

• Claims from clients or the public
• Loss of income if you can’t work due to illness or injury
• Damage to your tools, equipment, or workspace
• Legal costs if you need to defend yourself against a claim

Some self-employed insurance is mandatory by law, whereas some types of cover are optional “nice to haves”, but can give you extra protection if things don’t go to plan.

It’s also important to note that the cover you’re required to have depends on the type of work you do, the size of your business, the risk level, and whether you hire anyone.

What are the main types of insurance for the self-employed?

Having the right kind of insurance is crucial for sole traders and freelancers as it can protect your income, business assets, and reputation if something unexpected happens. 

Below are the main types of insurance self-employed people should consider, what they cover, and why they’re important. 

Business liability insurance

Business liability insurance protects your business if it’s held responsible for causing injury, property damage, or financial loss to a third party. The main types of business liability insurance include:

• Public liability insurance: covers injury or property damage to clients, customers, or the general public caused by your business activities.
• Professional indemnity insurance: covers claims that come from mistakes, negligence, or advice you provide that causes a client financial loss.
• Product liability insurance: covers claims if a product you sell or supply causes harm or damage (for example, from an online store or other kind of ecommerce business).
• Employers’ liability (EL) insurance: covers the cost of compensation claims if a staff member becomes ill or injured as a result of their work.

While business liability insurance isn’t a legal requirement for most businesses, there are some cases where it would become so. For example, certain professions — such as accountants, architects, or solicitors — are required to have professional indemnity insurance to meet regulatory requirements. 

Business liability insurance is useful to have because it protects your business and personal finances from any unexpected and costly claims. Even a small mistake, accident, or dispute with a client can lead to legal fees, compensation, or damage to your reputation.

Income protection insurance

This is a long-term insurance policy that pays a portion of your income (usually a tax-free monthly income) if you’re unable to work due to illness or injury.

Income protection insurance isn’t a legal requirement, but it’s highly recommended because it offers a safety net and helps you cover living expenses while keeping your business running.

It’s especially important if you’re a sole trader or freelancer, primarily because you don’t receive employee benefits, such as sick pay or annual leave entitlements. Therefore, if an illness or injury happens, you won’t receive any income unless you’re insured.

The amount you receive typically depends on your earnings at the time of the claim, though you can usually get between 50% and 70% of your gross income from a policy. Some policies also offer extra features, like cover for partial disabilities or flexible payment options, so you can tailor it to your needs.

Health insurance for the self-employed

Health insurance for the self-employed helps cover the cost of private medical treatment if you become ill or have an accident. Unlike employees, who may get access to health-related perks or private healthcare schemes through their workplace, if you’re self-employed and want health insurance, you’ll have to arrange it yourself.

It can cover things like consultations, tests, surgeries, and hospital stays that might otherwise have long waiting times on the NHS. Some plans also include specialist treatments, physiotherapy, or mental health support.

Of course, health insurance isn’t legally required, as UK residents can access free healthcare through the NHS. However, it can be beneficial in offering faster access to treatment, giving more choice over specialists and hospitals, and reducing waiting times for critical procedures. This will let you get back on your feet quicker, and ultimately back to earning sooner. 

Property and equipment cover

This type of insurance protects your business’s physical assets. There are two types of policies — commercial contents insurance and business vehicle insurance.

Commercial contents insurance covers a number of physical assets, protecting them in the event of theft, fire, flood, or accidental damage. This includes:

• Furniture: desks, chairs, filing cabinets, etc.
• Equipment: computers, printers, machinery, phones etc.
• Stock: inventory and other goods your business sells.

While not mandatory, commercial contents insurance is extremely useful because it protects the tools, equipment, and stock your business relies on. Without it, you could face significant out-of-pocket expenses to replace essential items, which could hurt your income and profit margins.

On the other hand, vehicle insurance covers the work-related use of a vehicle (such as a car or van), protecting against damage, theft, vandalism, and injury to others. 

This is useful if you’re a self-employed person who relies on your vehicle for work, as it ensures you can carry out business-related activities without risking personal financial loss if an accident, theft, or damage occurs.

What self-employed insurance is legally required?

Only two types of insurance are legally required for self-employed people in the UK – employers’ liability insurance and professional indemnity insurance, for certain professions.

Do I need employers’ liability insurance?

EL insurance is mandatory if you employ staff, even if they’re only part-time. While it isn’t compulsory for taking on volunteers, those under an employment contract will need to be covered by EL insurance, as they’re generally treated more like an employee. However, you won’t have to take out EL insurance if you only employ family members or people based outside of England, Scotland, and Wales.

Your EL insurance must: 

• Cover you for at least £5m 
• Come from an authorised insurer

If you do not have EL insurance, you can be fined up to £2,500 each day you’re uninsured, as well as an additional £1,000 fine for not displaying your insurance certificate where your employees can access it (such as in your workplace or on your business website). 

Do I need professional indemnity insurance?

As for professional indemnity insurance, this is mandatory if you’re self-employed and working in a regulated profession that involves giving expert advice or services where mistakes could lead to financial or personal loss for clients. For example:

• Accountancy and finance
• Law
• Property
• Architecture
• Healthcare

Professional indemnity insurance protects both parties by covering legal costs and compensation claims if an error or negligence occurs.

How much does self-employed insurance cost?

A basic package can cost up to £10 per month. Policies with more comprehensive coverage, higher payout limits, or multiple types of protection can cost over per month.

However, the exact amount you pay for self-employed insurance will come down to:

• The type of insurance: different policies (such as income protection and liability) come with varying price tags.
• Industry: those in high-risk industries like construction or healthcare typically pay more for coverage.
• Level of cover: higher coverage limits or additional benefits, such as partial disability cover or extended legal protection, can increase the cost.
• Business size: if you have higher earnings or more clients, you may have to pay more for insurance.
• Number of employees: if you have staff, especially in full-time or high-risk roles, premiums for EL insurance may increase.
• Location: some areas are considered higher risk for theft or accidents, which can affect the cost of your insurance.
• Claims history: if you’ve made past insurance claims, insurers may see your business as high risk, which in turn can increase the cost.
• Personal factors: for policies like income protection or health insurance, your age, health, and lifestyle habits can influence the price of your insurance.

How to choose and buy the right self-employed cover

It can be tricky to choose the right self-employed insurance, but focusing on your business needs and risks can make the process easier. 

Here’s what you should consider before agreeing to take out any cover:

• Assess your risks: think about the biggest threats to your business, such as client claims, accidents, illness, or damage to your equipment. 
• Look at your specific profession: check whether your profession or business activities require mandatory insurance, such as EL insurance if you hire staff, or professional indemnity for regulated professions. 
• Check client contracts: some clients, especially larger companies or agencies, may require that you have a specific type or level of insurance (such as professional indemnity or public liability) before they will work with you.
• Compare policies and providers: shop around for providers and take a look at things like coverage limits, exclusions, premiums, and any additional benefits.
• Bundle when possible: some insurers offer combined packages (for example, liability + contents + income protection), which can be more convenient and cost-effective.

Where can I buy self-employed insurance?

There are many well-known companies offering a wide range of business insurance that can be tailored for freelancers and self-employed individuals. A few examples include:

• Hiscox: offers business insurance for self-employed people, including public liability and professional indemnity cover.
• Direct Line for Business: provides flexible insurance packages for contractors and freelancers, offering customisable policies with no admin fees for making changes.
• Aviva: a major player in the commercial insurance space, offering a variety of insurance options for small businesses and freelancers.
• PolicyBee: a specialist broker that focuses on hassle-free protection for freelancers, sole traders, and limited companies — offering cover for professional indemnity, public liability, and EL insurance.

However, as mentioned above, make sure you use comparison tools to compare different providers, coverage, and prices. This will help you find the best deal for your needs and budget.

That said, don’t just go for the cheapest option you find without thoroughly checking the coverage terms. Even if it suits your budget, it won’t do any good for your business if it doesn’t actually cover your risks or help you in the long run. 

What happens if I don’t have the right insurance?

Not having self-employed insurance can lead to serious financial losses. Without protection, you’d be personally responsible for covering any losses, damages, or legal costs that could occur. This could put you in serious debt, or even force you to stop trading altogether. 

You may also face significant penalties if you don’t have the insurance you’re legally required to have, including EL and professional indemnity insurance. 

Therefore, it’s essential to have the right insurance in place to avoid these kinds of fines and safeguard yourself, your business, and anyone you work with.

Remember – insurance isn’t meant to be a burdensome cost. Instead, it’s a professional investment that ultimately protects your income, reputation, and future, giving you the peace of mind to focus on growing your business without worrying about unexpected setbacks.