Sole trader and self-employed insurance: public liability and the covers you need
Most sole traders don't need public liability insurance by law, but many can't work without it: clients, councils, landlords and head contractors usually ask for it and set the minimum limit, often $10 million or $20 million. Some states also require it for certain occupations, and because you and the business are the same legal person, an uninsured claim can reach your home and savings. This page is for anyone self-employed with an ABN: sole traders, contractors and freelancers.
Public liability is usually one of several covers. Most sole traders also look at professional indemnity if they give advice or professional services, cover for tools and equipment, and personal accident and illness or income protection for themselves, because workers compensation doesn't cover a sole trader's own injuries in any state. Very little is compulsory while you work alone. That changes the day you employ someone, including an apprentice or a contractor who counts as a worker.
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General advice only. It doesn't consider your circumstances. Read the PDS and TMD before you decide.
The covers sole traders usually need
The right mix depends on what you do. A mobile hairdresser needs public liability and tools cover more than PI; a freelance bookkeeper is the reverse. Everyone who relies on their own ability to work should look at cover for themselves.
Sole trader mechanics need one cover the table's other rows miss. Public liability usually excludes property in your care, custody or control, which for a mechanic is the customer's car on your hoist or on a road test (the GIO Business Protect wording is an example). Motor trade policies add a customer's vehicles section for that: Vero's Motor Trade Insurance Policy, for example, covers vehicles owned by your clients while they're in your care, custody or control for servicing, repair, road testing, maintenance, inspection or delivery, including while fitted with a trade plate.
| Cover | What it pays for | Compulsory? | Most relevant to |
|---|---|---|---|
| Public liability | Injury to others or damage to their property caused by your work | Only for certain occupations in some states; often required by clients, councils and landlords | Anyone working with the public or on other people's premises |
| Professional indemnity | Clients' financial loss from your advice or professional work | For some professions (for example, tax agents and registered health practitioners) | Consultants, bookkeepers, designers, IT contractors, health practitioners |
| Personal accident and illness | A weekly benefit if injury or illness stops you working, for a limited period | No | Every sole trader whose income stops when they stop |
| Income protection | Part of your income for longer periods if you can't work | No | Sole traders who want longer-term income cover |
| Tools and portable equipment | Theft of or damage to tools, laptops and equipment away from home | No | Tradies, photographers, mobile workers |
| Product liability | Injury or damage caused by goods you make, import or sell | No | Makers, importers and online sellers |
| Motor trade (customers' vehicles) | Loss of or damage to customers' vehicles while they're in your care, custody or control for servicing, repair, road testing or delivery | No | Mechanics, mobile mechanics and other motor trades |
| Cyber | The costs of a hack, ransomware or data breach | No | Anyone taking payments online or holding client data |
| Workers compensation | Your workers' wages and medical costs after a work injury | Yes, once you employ workers | Sole traders who employ anyone |
Workers compensation doesn't cover you, in any state
Workers compensation insures an employer's workers, and a sole trader isn't their own employee. business.gov.au says it directly: if you're a sole trader, workers compensation doesn't cover you, and you'll need your own death, illness and disability cover. The schemes say the same thing in their own words, with a few options worth knowing about, summarised in the table below.
Each scheme's rules for owners, directors and contractors are set out in our state guides: NSW, Victoria, Queensland, WA, South Australia, Tasmania, the ACT and the NT.
| State | Covers the sole trader? | Options for owners |
|---|---|---|
| NSW | No. icare says sole traders, proprietors and partners can't cover themselves | icare points to personal accident and illness cover or income protection |
| VIC | No. Sole traders and partners without employees don't register | If your own company employs you, you are its worker and it must register |
| QLD | No. Sole traders, partners, directors and trustees aren't covered by WorkCover's accident insurance | Optional Workplace Personal Injury Insurance from WorkCover Queensland |
| WA | No. Individuals generally can't cover themselves, even with an ABN | A company can choose to cover its working directors |
| SA | No. The scheme covers workers under a contract of service | Working directors employed under a contract of service are workers |
| TAS | No. The scheme insures employers for their workers | Private accident and illness cover |
| ACT | No. WorkSafe ACT says sole traders and partners aren't workers | Private accident and illness cover |
| NT | No. The scheme covers workers under the PAYG test | Directors can be covered if paid through PAYG and disclosed to the insurer |
Covering yourself: personal accident and illness vs income protection
Two kinds of product replace income when you can't work. Personal accident and illness (sometimes called accident and sickness) is general insurance. business.gov.au describes it as paying you for loss of income while you recover. It's often sold alongside business packages, with benefits paid for a limited period and relatively simple underwriting.
Income protection is a life insurance product. It can pay for much longer benefit periods, but the application process is more detailed, and if someone depends on your income you can compare life insurance at the same time. For both, compare the waiting period before payments start, how long they last, how the policy defines being unable to work, and how your income is assessed, because sole traders' earnings vary and some policies average them over a period.
In Queensland there's a third option: WorkCover Queensland's Workplace Personal Injury Insurance, an optional policy for contractors, self-employed people, directors, partners and trustees. WorkCover says the minimum premium is $1,650 a year, including GST and stamp duty. It covers work-related injury only, not illness or injury outside work.
What is the 80% rule for sole traders?
The 80% rule is part of the ATO's personal services income (PSI) rules, not an insurance rule. PSI is income produced mainly (more than 50%) from your own skills or efforts. If 80% or more of your PSI comes from one client and their associates, you fail the 80% rule, and the PSI rules apply unless you pass the results test or hold a personal services business determination from the ATO.
The results test needs all three of these for at least 75% of your PSI: you're paid to produce a specific result, you provide the equipment or tools the work needs, and you're required to fix mistakes at your own cost. If you get less than 80% from one client, you can instead self-assess as a personal services business by passing the unrelated clients, employment or business premises test. When the PSI rules apply, they change the deductions you can claim and how the income is reported.
The insurance angle is separate but worth checking. If one client supplies most of your work, read that client's contract for its insurance clauses, because the client usually sets the public liability limit and may require professional indemnity or workers compensation for anyone you engage. And don't confuse the ATO's test with workers compensation: each state scheme has its own test of whether a contractor is a worker, which is set out on our state workers compensation guides.
The downsides of being a sole trader, and the covers that offset them
business.gov.au lists the trade-offs of the sole trader structure alongside its simplicity. Several of them are risks that insurance exists to carry.
| Downside | What it means | Cover that offsets it |
|---|---|---|
| Unlimited liability | business.gov.au says a sole trader has unlimited liability and all personal assets are at risk if things go wrong | Public liability, and professional indemnity if you're paid for advice or expertise |
| No workers comp or sick leave for yourself | Workers compensation doesn't cover a sole trader's own injuries in any state | Personal accident and illness cover, or income protection |
| Income stops when you stop | You're personally liable for the tax on all the business income, and there's no employer to keep paying you | Income protection for the self-employed, with a waiting period matched to your savings |
| Business assets are personal assets | Tools, stock and equipment are yours, and a home contents policy may limit or exclude business use | Tools or portable equipment cover, and business contents cover |
| No compulsory super for yourself | business.gov.au says you choose whether to pay super to yourself | Super contributions, and any life or TPD cover you hold in super, need your own plan |
How much public liability cover a sole trader needs
Public liability covers your legal liability if someone is injured or their property is damaged because of your negligence while you're working. The limit you need is usually set by someone else. A council permit, a head contractor's subcontract, a landlord's lease or a client's contract names a minimum and asks for a certificate of currency. The City of Melbourne, for example, requires at least $20 million for a single claim for activities in its public spaces.
Where nobody sets a figure, think about the most serious injury or damage your work could cause, because you pay anything above the limit yourself. Check too whether products liability is included if you sell or install goods.
What moves a sole trader's public liability premium
Insurers price public liability on the chance of a claim and its likely size. There's no standard price, so give every insurer the same details and compare like with like:
- Your occupation and exactly what you do. A mobile dog groomer and a roof plumber are priced very differently.
- Your turnover, which insurers use to measure how much work you do.
- The limit you choose, and whether products liability is included.
- Where you work: clients' homes, commercial sites or public spaces, and any work at heights or other hazardous work.
- Your claims history and the excess you choose.
- Your ABN, which most insurers ask for when you apply.
Public liability or professional indemnity?
If you're paid for advice, designs or professional services, the bigger risk may be a client's financial loss from a mistake in your work, which public liability doesn't cover. That's professional indemnity insurance. A freelance bookkeeper or consultant usually looks at PI first; a tradie or mobile service usually needs public liability first; some sole traders need both. Tradies can see public liability for tradies for the covers a trade business adds.
When you take on your first worker
The day you employ someone, including a casual, a part-timer or an apprentice, workers compensation becomes compulsory under your state's scheme, subject to the small-wages exemptions in NSW, Victoria and South Australia (which don't apply to apprentices and trainees in NSW and Victoria). Deadlines can be short: 5 business days in Queensland and 14 days in South Australia.
Using subcontractors can trigger it too. A contractor who mainly supplies their own labour and works under your direction can be your worker in law even if they have an ABN. Each scheme's test, rates and policy links are on our guide to workers compensation insurance in every state.
How to compare sole trader insurance
Sole trader premiums are driven by the same factors as any business: your occupation, turnover, limits, claims history and excess. Keep those constant across quotes:
- Describe your occupation exactly, including any secondary work.
- Give the same turnover figure to every insurer.
- Match the limits to what your clients, councils or registration body require.
- Decide whether a package or separate policies suits you better; packages can be convenient, but check each section's limit and excess.
- For cover for yourself, compare waiting periods and benefit periods, not just the premium.
General advice only. This information doesn't take into account your objectives, financial situation or needs. Consider whether the product is right for you and read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) before you decide. We don't compare every product in the market, and we may earn a commission if you take up a product through our links.
What to watch for
- Don't assume workers comp covers you. It doesn't, in any state, so arrange your own income cover.
- Your personal assets are exposed. A sole trader has no company between a claim and the family home.
- Hiring your first worker, or using labour-only subcontractors, can make workers comp compulsory straight away.
- Check your home contents policy before relying on it for business equipment or a home office; many limit or exclude business use.
- Business policies carry the full duty of disclosure, so tell the insurer everything relevant, including matters the form doesn't ask about. See what you have to tell the insurer.
Common questions
What insurance does a sole trader need?
Most sole traders consider public liability, cover for their tools and equipment, and personal accident and illness or income protection for themselves. Add professional indemnity if you give advice or professional services, product liability if you sell goods, and workers compensation if you employ anyone.
Do sole traders need public liability insurance?
It isn't compulsory for most sole traders, although some states require it for certain occupations. In practice many clients, councils, landlords and head contractors won't work with you without it, and they set the minimum limit, often $10 million or $20 million.
Do sole traders need workers compensation?
Not for themselves: workers comp doesn't cover a sole trader's own injuries in any state. You must insure any workers you employ, and some subcontractors count as workers.
Do ABN holders need insurance?
Having an ABN doesn't by itself require you to hold any insurance. Requirements come from what you do: employing workers (workers comp), your profession (PI for some), your occupation in some states (public liability), a registered vehicle (CTP), and the contracts, leases and permits you sign.
What insurance do I need if I am self-employed?
The same as a sole trader: public liability if you work with the public, PI if you're paid for expertise, tools and equipment cover, and cover for your own income, because workers comp doesn't cover self-employed people.
What is the 80% rule for sole traders?
It's an ATO personal services income test. If 80% or more of your personal services income comes from one client and their associates, the PSI rules apply unless you pass the results test (for at least 75% of that income) or have a personal services business determination. It affects tax and deductions, not your insurance.
What are the disadvantages of being a sole trader?
business.gov.au lists unlimited liability, with all your personal assets at risk, being personally liable for tax on all the business income, and not being able to split profits with family members. You also have no workers comp or sick leave for yourself, which is why public liability and cover for your own income matter.
How much is public liability insurance for a sole trader?
It depends on your occupation, turnover, the limit you choose, whether products liability is included, your claims history and the excess. Get quotes with identical details from several insurers to see the real difference.
Can sole traders claim insurance as a tax deduction?
The ATO lists business insurance premiums, including public liability, professional indemnity and accident or disability cover, among the operating expenses a business can generally deduct. Check your own situation with your accountant.
General information only
This page explains how insurance for sole traders generally works. It is not advice about your business or any particular policy. Read the Product Disclosure Statement and Target Market Determination before you buy.