DISCLAIMER: The information on this page is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation, or needs.
Sifting through insurance plans can be complicated, whether you’re looking to soften the blow of unexpected vet bills, or replace your gear if your car gets stolen.
For sole traders, there’s an added layer of complication; depending on your line of work, you don’t just need to protect your stuff, you need to protect yourself. Think of insurance as the lifebuoy on a yacht – you might not think about it while sipping bubbles on deck, but if old mate Gary falls overboard, it’s suddenly top of mind.
But don’t worry – once you know what you need, sole trader insurance is pretty straightforward. There are five main types of insurance that cover most requirements, and plenty of bespoke options out there for more complicated situations.
Whether you’re a tradie, a graphic designer, a personal trainer, or a performing fire-eater, we’ll cover everything you need to know in this guide to insurance for sole traders in New Zealand.
Why sole traders need insurance
For most independent earners, a sole trader business structure is the best option. Sole traders have far less business, financial, and tax administration, which means more time on the actual job.
One of the biggest differences between a sole trader and a company structure is that sole traders ARE their business. Unlike companies, there is no separate entity shielding you from personal liability. What this means is that if the worst happens and your business is sued, you will personally be on the hook for damages.
But don’t worry – that’s what insurance is for. With the proper insurance plan in place, you can enjoy similar levels of protection as if you’d incorporated a company, without all the hassle of actually, well, running a company.
Insurance also protects sole traders from losing income if they’re sick or injured. Whether you’re in a risky occupation, have a chronic condition, or are extremely accident-prone, a solid insurance policy helps you pay for the essentials while you rest up and recover.
It’s a bit like taking sick leave, only without needing to run it by your manager and log it in whatever HR app the kids are using these days.
Types of sole trader insurance
There are five main types of insurance sole traders need to know about when protecting themselves and their business. Here’s the summary:
- Professional Indemnity: If you end up causing damage to a client’s business, Professional Indemnity can help cover damages, compensation, and legal costs.
- Public Liability: Helps cover the cost of legal action or compensation from a member of the public.
- Personal Accident: Provides cover if you’re unable to work due to an accident.
- Income Protection: Provides cover if you’re unable to work due to an ongoing health issue.
- Health Insurance: Helps pay for treatment in a private hospital, and can cover treatment not covered by public healthcare.
Now you’ve got the gist of them all, let’s delve into each type of insurance. But first –
A quick note about the Accident Compensation Corporation (ACC)
When working in New Zealand, understanding the ACC system is crucial. It’s a comprehensive, no-fault personal injury cover system for all New Zealand residents and visitors. Unlike other countries where you might sue for personal injury, ACC provides financial support for those injured in accidents, covering everything from medical bills to rehabilitation costs and offering income compensation for time off work.
Moral of the story: While you can’t sue for personal injuries in most scenarios, you can rely on ACC to back you up financially. For sole traders, knowing your ACC levies and what you’re entitled to can provide peace of mind.
While the ACC provides basic cover, sole traders can also opt for ACC CoverPlus Extra. It lets you agree on a specific amount for lost earnings compensation beforehand, so there’s more clarity if an injury happens.
1. Professional Indemnity insurance
When you’re working for clients, you may be making decisions, delivering services, or creating things that can have a significant impact on your clients’ businesses. Should you be identified as the cause of a significant negative impact to another business, you may be held liable for the damages caused.
Professional Indemnity insurance can help provide cover for any damages, legal fees, and compensation you might be on the hook for – potentially up to millions of dollars, depending on your package.
It’s worth noting that the majority of Professional Indemnity insurance policies are only valid if you have cover at the time a claim is made. Even if you complete work for a client within the period you’re covered for, if the client makes a claim against you after your policy lapses, you won’t be covered by your Professional Indemnity policy.
Moral of the story: if you’re doing highly impactful work for major clients, make sure you renew your Professional Indemnity insurance regularly!
Good for: high-responsibility workers, or sole traders doing business with massive clients.
2. Public Liability insurance
Unlike Professional Indemnity insurance, which specifically relates to your impact on businesses and others you work for, Public Liability insurance covers your impact on the general public. If any work you’re responsible for negatively affects members of the public, Public Liability insurance can help cover the cost of any legal action brought against you.
For example, let’s say you work in a theatre, and failed to properly secure a piece of scenery, that then fell on an audience member. If that person took legal action, Public Liability insurance could help cover some or all of the associated costs.
Public Liability insurance is provided in cover levels of $500k, $1m, $2m, $5m etc, and the level of cover you require will determine the cost of the policy.
Good for: sole traders whose work impacts or interacts with the general public (eg. in public construction and infrastructure, or public art and theatre).
3. Personal Accident insurance
Despite the presence of ACC, Personal Accident insurance is still available in New Zealand. While ACC provides no-fault personal injury cover for all New Zealand residents and visitors, there are some gaps and limitations in ACC’s coverage.
- ACC only covers accidents and not illnesses.
- ACC compensation might not fully replace lost income, especially for those earning above the capped limit.
- ACC may not cover all rehabilitation or other associated costs.
Given these and other potential limitations, many New Zealanders opt for Personal Accident insurance, or other forms of private insurance to supplement ACC cover and provide protection against other circumstances not covered by ACC, like illness or non-work-related health issues.
Good for: sole traders looking for extra cover beyond what is offered by ACC.
4. Income Protection insurance
If you have a chronic condition, a disability, or periods of poor health that leave you unable to work, Income Protection insurance is your best friend. This type of insurance can pay out up to 85% of your pre-tax income during periods where you aren’t working, so you can continue paying for all your essentials.
Policies generally come in two types: Indemnity Value policies and Agreed Value policies. Indemnity Value policies pay out a percentage of your total income at the time the claim is made, while Agreed Value policies pay out a percentage of an amount you agree to when you first take out the policy.
Agreed Value policies tend to be more expensive than Indemnity Value policies, but it might be worth it if you’re on a fluctuating income. We recommend doing your research here.
Good for: those with chronic conditions, a disability, or work-restrictive poor health.
5. Private Health insurance
The public health system in New Zealand is top-notch a lot of the time, but sometimes, you might face wait times for certain treatments. Enter private health insurance. It can offer you faster access to medical treatments, choice over specialists, and coverage for procedures not funded by the public system.
Moral of the story: Health insurance isn’t just about skipping the queue; it’s about ensuring you receive timely medical attention, especially when time is of the essence for a sole trader.
Note: Many health insurance policies in NZ also throw in benefits that supplement public services. Think dental care, physiotherapy, and optometry.
Good for: Sole traders looking to reduce potential downtime due to health issues and those who value the option of choosing their medical professionals and facilities.
Where Hnry comes into all this
So we actually can’t directly help you with insurance – but our friends at Bizcover can. They specialise in sole trader insurance, and can help you find the policies that fit your needs best.
But what we do is sort all your tax stuff for you, which is another distraction you can live without.
For just 1% + GST of your self-employed income, capped at $1,500 a year, Hnry will calculate and pay all your taxes, levies and whatnot for you, including:
We can also handle things like:
- Invoice chasing (politely of course. Get paid 8 days faster than the industry average!)
- Scheduling invoices
- Raising expenses
- Reviewing expensing
And we automatically complete and lodge your tax returns for you. Basically, we become your accountant. And you’ll never have to think about tax again!