Yes is the straightforward answer to this question. The more complicated answer is that it depends on both the sort of business and the jurisdiction.
Business type
If you own your business as a lone proprietor, you do not need a license to obtain a liability insurance certificate. You’re the only employee in your company at this point in your career. As a result, an insurer should give you with the coverage you require.
If you have a limited liability corporation (LLC) linked to your firm, the same rules apply. This is the next level down from a business license. You’re still registered in the state where your business is located. Commercial insurance and tax benefits, on the other hand, are usually not required.
Liability coverage in a sole proprietorship versus an LLC
You get a sort of liability protection that isn’t tied to insurance when you join an LLC. You may be shielded from some or all liability for the LLC’s activities and obligations, depending on your state’s shield rules. This does not occur if you, as a sole proprietor, are held responsible. General liability insurance is required in both cases to cover potential fees and settlements.
State regulations
Your jurisdiction’s requirements will determine whether or not you can acquire a general business liability insurance coverage without a business license. If you’re a sole proprietorship or a limited liability company, local or county governments may not need it. This is particularly true if you don’t have a physical location or workers.
A business license, on the other hand, is required if you operate a physical or virtual storefront business with workers who provide goods and services. It’s the only way to operate lawfully and avoid paying fines. It also gives you the option of purchasing extra policies for workers’ compensation and commercial property.
Registering your business
You have the option of launching your firm as a sole trader or as a limited corporation. As a single trader, the only business registration you’ll need to complete is a self-assessment tax registration with HMRC. On the government’s website, you can do so.
There’s a little more paperwork involved when you form a limited corporation. You must register your business with Companies House (also known as ‘incorporating’), after which you will be assigned a company registration number (CRN). Some companies are able to finish the registration process entirely online).
If you’re not sure which business structure to choose, this article delves deeper into your alternatives.
Buying your business insurance
Although it is critical to register your business and check all of the legal boxes when you first start out, you do not need to do so before purchasing business insurance.
Insurers require information such as your business address, trade type, and current or predicted turnover when you purchase a policy. You might also be asked about your business structure (for example, whether you’re a single trader or a limited corporation). You will not, however, be asked for your CRN or any other information related to your business registration.
This means you can purchase business insurance while completing the rest of the paperwork required to start your company.
Can you get in trouble for not having business insurance?
The courts take a harsh position against drivers who are accused with driving without insurance, and it is considered a strict liability offense in which you either had proper insurance at the time of driving or didn’t. This offense has a penalty of 68 penalty points in addition to a fine.
What information do you need for business insurance?
When registering for general liability insurance, your company will be asked to supply information such as revenue, employee count, and claims history, among other things. The ease with which you can acquire a quote and the price you’ll pay for a premium are influenced by your company’s degree of risk and whether or not it has filed a claim in the past. Even if you have a history of filing claims or work in a high-risk field, Insureon can likely assist your firm in finding insurance.
Does a self-employed person need insurance?
You may be required by law to have certain business insurance plans in place, depending on the type of business you operate.
Many small firms purchase public liability insurance, especially if consumers visit or operate on their facilities. This safeguards you in the event that your company actions result in property damage or harm.
If you give professional services or advice as part of your career, you should consider purchasing professional indemnity insurance, which can protect you if a customer is dissatisfied with the work you’ve done or faces legal troubles as a result of it.
Employers’ liability insurance, which covers claims made by employees who are hurt or become ill as a result of their employment for you, is required by law if you employ others.
If you work from home, you’ll need to be sure you have the appropriate house insurance coverage.
Finally, depending on your industry, you may want to consider specialised insurance such as cars insurance, premises insurance, or contents, stock, and materials insurance.
Do I need insurance if I am a sole trader?
Working for yourself might be liberating, but you are responsible for all paperwork, including insurance. You’re an expert at what you do, but you didn’t start your company to be an insurance expert. Your firm is unique, and so are your insurance needs, as sole traders work in a range of industries.
The basics of insurance for sole traders, including why it’s so important, the policies you should consider, your legal requirements, and the customised insurance plans available for different sectors, have been covered by our insurance specialists at FSB Insurance Service.
Why is insurance so important as a sole trader?
Insurance safeguards your company and provides peace of mind to you and your customers, as well as providing a financial safety net in the event that you are held liable for any charges. It’s also an important part of your Business Continuity Plan, as it allows you to keep running your company even if something goes wrong.
Even if you’ve been self-employed for a long time, it’s crucial to make sure you have the correct insurance for your business. Your business may have changed over time, and your policy may need to be updated. There may also be some aspects of your business that are not covered by normal insurance wordings. When the worst happens and you need to file a claim on your insurance, the last thing you want to find out is that you’re not actually insured for that situation.
What insurance do I need?
The type of commercial insurance you need is determined by a variety of circumstances, including but not limited to:
Let’s take a look at some of the most typical types of lone trader insurance.
Public Liability insurance
Public liability insurance is one of the most prevalent types of business insurance. It covers your liability to third parties. It protects you against financial harm if a claim is brought against you or your company for loss or damage to third-party property or people as a result of your negligence.
Professional Indemnity insurance
Professional Indemnity can help you cover any fees or claims made against you if a mistake you make in your job while advising a client results in a financial loss to that client.
Professional Indemnity will not protect you if you do a poor job or if you use ‘faulty workmanship.’ Professional indemnity insurance will not protect you if you install a boiler that isn’t properly installed and causes a gas leak.
Product Liability insurance
This insurance covers you in the event of a loss, damage, or injury caused by a product you designed, installed, supplied, or maintained. If you work with items or make repairs, it’s critical to make sure you’re covered in case a product you handle causes loss, damage, or injury.
Cyber insurance
Cyber insurance can protect you in the case of a cyber-attack or data breach if you handle client data or conduct business online. Cyber insurance provides a safety net and, to some extent, covers your liability for any incidents.
Members of the FSB are covered by cyber insurance as part of their membership. Both first-party and third-party claims are covered to a limited extent.
However, when your company grows, the hazards and financial risk exposure rise. As a result, you may want to boost your cyber insurance with the help of FSB Insurance Service to secure your company.
Employer’s Liability insurance
Although the majority of sole traders work alone, this does not rule out the possibility of hiring someone in the future, whether for a long or short period of time. Even if you’re only hiring one worker or using labor-only subcontractors, you’ll need to invest in Employer’s Liability insurance as a legal requirement. If you have any employees, you must have an Employer’s Liability insurance policy.
Because your employees are your duty, any loss, damage, or injury could lead to a claim against you. Employer’s Liability covers your legal duty for your employees, and in the event of a claim, the cost of legal expenses (depending on your policy) and the claim amount are covered by Employer’s Liability.
I’m running my business from home. Do I need insurance?
If you run your business out of your house, you’ll want to talk to your home insurer about getting the necessary coverage for your business assets and operations. Taking out policies like Professional Indemnity insurance to safeguard yourself against any liabilities is still a good idea. If you’re not sure, talk to an insurance professional at FSB Insurance Service who can provide you advice depending on your specific situation.
Are you a tradesperson?
Because tradespeople’s work might be various, it’s critical that you be explicit about what you do when speaking with your broker. When it comes to finding a policy, your broker will need to know if you work with heat or to specific heights (and depths!).
If you have subcontractors, you’ll need to make sure they have the proper insurance, which may be your duty in some cases.
Are you a freelancer or contractor?
It’s critical to be protected, whether you’re a full-time contractor or work on freelance jobs as a side hustle. When signing into contracts with organizations, particularly government or councils, many contractors and consultants will discover that they have contractual PI limits.
To discover more, download our free guide to insurance for freelancers and contractors.
What else do I need to consider?
There are numerous scenarios that could arise in the day-to-day operations of your company and throw a wrench in the works. Here are a couple such examples:
If you’re called to serve on a jury, not only will the time spent in court have a significant impact on your small business’s day-to-day operations, but it may also result in a loss of income.
Being self-employed necessitates the completion of self-assessments. Many sole entrepreneurs are concerned about receiving a notice from HMRC in the mail, not to mention the time and money it will take to complete the process.
Members of the FSB receive up to £100,000 in tax investigation protection, as well as support and representation from our tax professionals.
Dealing with unfavorable news or a public relations issue on your own can be difficult. The FSB Legal Protection Scheme, which is included with FSB membership, provides critical coverage to assist you in dealing with a crisis.
Get the right cover for your business
FSB members can join the FSB Insurance Service for free and gain access to a variety of services and resources, including an insurance help line.
What insurance is a legal requirement?
The only type of business insurance that is required is employer’s liability insurance (under the Compulsory Insurance Act 1969). It only applies to companies that have employees. It is not required to purchase the policy if you are a sole proprietor.
Regulatory organizations may require the operation of a certain insurance coverage, such as professional indemnity. For experts working under a limited corporation, professional indemnity insurance is required.
How much is a 2 million dollar insurance policy for a business?
One mistake could knock you out of business if you don’t have general liability insurance. It is considered an imperative need by the majority of business owners. If you’re sued for inflicting personal harm or property damage, general liability insurance protects your company’s assets. If you’re sued because of a faulty product, for example, your insurance company will pay for the damages, as well as settlement and attorney expenses.
Even a minor blunder can result in a costly lawsuit. In today’s world, lawsuits are becoming more widespread. You can’t afford to be without a general liability policy, especially given its low cost.
General Liability Insurance Average Costs
The cost of general liability insurance is surprisingly low. The majority of plans are under $1,000 per year. Annual premiums for a $1 million coverage range from $300 to $1,000. While $2 million in coverage will cost between $500 and $1,300 on average. A $5 million coverage will cost between $700 and $1,500 each year.
Of course, there are exceptions. Businesses that are more likely to cause human harm or property damage will pay a higher premium. Contractors and landscaping companies, for example, will pay at the higher end of the pricing ranges listed above. Retail shops and photo studios, for example, will pay less because they pose less risk.
The quantity of coverage you purchase is entirely up to you. Insurance firms, on the other hand, will make recommendations based on a variety of variables. Some policies are based on the value of your company’s assets, while others are based on the scale of lawsuits that firms comparable to yours have faced.
How Much General Liability Insurance Coverage Do You Need?
The single most important aspect in calculating how much coverage you require is risk. Accidents and blunders are unavoidable. However, because to the nature of their industries, some corporations are more vulnerable to them. A roofing company is considerably more likely than a clothing store to have an accident. When determining general liability insurance rates, an insurance company will also consider your previous history. Expect to spend extra if you’ve had accidents or been sued in the past.
Another key aspect in choosing the appropriate quantity of coverage is the location. In personal injury and liability lawsuits, some states have a tendency to award higher damages. If it’s usual in your area to hear about a $1.5 million personal injury claim for your line of work, make sure you have at least that much coverage. It’s usually preferable to have a bit more coverage than not, especially when the difference in annual costs is so small.