When you work for yourself, there’s no employer quietly arranging a safety net behind the scenes, no sick leave building up, no default cover through a workplace, no one to keep paying you if you can’t work. As a sole trader, all of that lands on you. Working out what insurance you actually need is one of those jobs that’s easy to put off, right up until the moment you wish you hadn’t.
The insurance a sole trader should think about really falls into two camps, and it’s worth being clear on the difference.
Business cover vs personal cover
The first camp is business or general insurance, things like public liability, professional indemnity, and cover for tools, equipment or a work vehicle. This protects your business against claims, damage and legal costs, and for some occupations it’s effectively required to win work or hold a licence. It’s important, but it’s a separate category, and it’s not what we handle.
The second camp, and the one this article focuses on, is personal or risk insurance. This protects you and your family financially if you get sick, injured, or worse, and can’t earn. It’s the cover most sole traders overlook, precisely because there’s no employer prompting them to sort it out. This is the area we help clients with.
Income protection: replacing your income if you can’t work
For most sole traders, this is the big one. If illness or injury stops you working, sole trader income protection insurance pays a monthly benefit (typically up to 70 to 75% of your income) to keep the bills covered while you recover. Unlike an employee, you’ve got no paid sick leave to fall back on, and unlike workers’ compensation, income protection covers you whether the illness or injury happened on the job or not.
Because self-employed income protection is assessed a little differently to an employee’s, insurers look at your tax returns or business financials rather than a payslip, we’ve covered eligibility and how insurers assess self-employed income in more detail in our separate guide on income protection for the self-employed. It’s worth a read if income protection is your main priority.
Life insurance: protecting the people who rely on you
If you have a partner, kids, a mortgage or business debt, life insurance for self employed people does a job an employee might not even realise they’re missing. Many employees have a level of default death cover through their super fund; as a sole trader, you may have little or none unless you’ve deliberately arranged it. Life cover pays a lump sum to your beneficiaries if you pass away, which can clear debts, replace your income for your family, and stop a business liability from becoming their problem.
TPD insurance: if you can never work again
Total and permanent disability (TPD) cover pays a lump sum if you become permanently disabled and can’t return to work. Where income protection replaces your income for a period, TPD deals with the more permanent scenario, funding long-term living costs, medical and rehabilitation expenses, home modifications, and clearing debt when the income isn’t coming back at all. For a sole trader whose livelihood depends entirely on their own capacity to work, that’s a significant gap to leave open.
Trauma insurance: a buffer for serious illness
Trauma cover (sometimes called critical illness cover) pays a lump sum if you’re diagnosed with a specified serious condition such as cancer, a heart attack or a stroke. It’s designed to give you breathing room, to take proper time off, pay for treatment, or reduce your workload, without the pressure of getting straight back to the tools or the desk. For someone self-employed, where stepping back usually means the income stops, that buffer can matter a lot.
Insurance Advisers Top Tip:
If you’ve recently gone from employee to sole trader, don’t assume your old cover came with you. Life or TPD cover tied to a previous employer’s super or salary package often lapses when you leave, and many people don’t discover the gap until months into working for themselves. Check what’s still active before you decide what you need.
So what do you actually need?
There’s no single answer that fits every sole trader, it depends on your debts, your dependants, your savings, and how your business would cope without you. But the honest starting point is this: as a sole trader you carry risks an employee simply doesn’t, and the default safety nets that quietly protect employees mostly don’t exist for you. Working out the right mix, and how to structure it cost-effectively (including inside or outside super where it makes sense), is exactly the kind of thing worth getting advice on rather than guessing at.
If you’re a sole trader trying to work out what cover you actually need, get in touch with our team at The Insurance Quoter. We’ll look at your situation and help you put together a personal insurance setup that fits, without paying for cover you don’t need or leaving gaps you can’t afford. For the business insurance side (liability, tools and the like), you’ll want a general insurance broker, but for protecting your income and your family, that’s where we come in.
FAQs
Do sole traders get any cover automatically through super?
Sometimes, but not always, and often less than you’d think. Some super funds include a default level of life or TPD cover, but it depends on your fund, your balance and your contributions. It’s worth checking exactly what (if anything) you already hold before assuming you’re covered.
Can I hold this cover inside my superannuation?
Some cover, such as life, TPD and income protection, can be structured inside super, which can help with cash flow. Each approach has trade-offs around tax, cover levels and definitions, so it’s worth getting advice on what suits your situation rather than defaulting one way.
I’m a brand-new sole trader with irregular income. Can I still get cover?
Usually yes, though insurers may want to see some history of income before they’ll set a benefit amount for income protection. Life, TPD and trauma cover are generally more straightforward to arrange early on, since they aren’t tied to proving ongoing earnings in the same way.
Is personal insurance worth it if my business is small or a side hustle?
It depends on how much you rely on the income and who depends on you. If the earnings are incidental it may matter less, but if your household counts on what you bring in, the size of the business matters less than the size of the gap losing that income would leave.
