Can you trust a sole trader without professional indemnity insurance?

A sole trader, also known as a sole proprietor, is a reference to the self-employed owner of a business. They are personally responsible for all profits, losses and the day-to-day running of the business, including all forms of paperwork such as insurance.

One form of insurance that sole-traders should purchase is indemnity insurance. This is the sole trader’s financial protection against any hefty claims from a client that would otherwise need to be compensated by the business – whether they were directly responsible or not. The insurance covers the cost of defending claims and potential damages payable for liabilities incurred from negligent advice, or services given by a business causing financial loss which the client needs compensating for. Different forms of indemnity include cash payments, repairs, replacement, and reinstatement.

If a sole trader is not covered by indemnity insurance, they put their own business at risk in addition to leaving their clients to deal with any losses incurred themselves. Any potentially small mistake can result in a claim against damages or financial loss against the business; it is not uncommon for this to result in bankruptcy of the business, and can also leave the client without what could be much needed compensation.

A client must also be wary of trading with a sole proprietor who does not have indemnity insurance. Should any mistakes or losses occur whereby the business is held liable, they may not be in a position to pay the compensation which is owed. As a client, you would be left to pick up the bill which is indeed unfair but more importantly could prove very costly.

If you are a sole trader, by purchasing a policy, you will be giving clients the assurance that, in the case of anything going wrong, they will not be left at a financial loss in any way. And with professional indemnity insurance being so affordable, it is unwise to jeopardise the business and tarnish your reputation.