Improvised scaff setup.

If you’re a self-employed tradie with a limited budget for insurance, what do you do?

Option one might be to not have any insurance, but that’s definitely not recommended!

So what is the most important form of insurance should a tradie be looking at then?

We’ll take a look at the three main forms of cover, and see if we can work out which is the most important for a self-employed tradie.

Public liability

Without doubt this is the most common form of tradies insurance.

A big part of the reason is that it’s mandatory for certain trades in certain states (Qld electricians for example) and a requirement to get onto certain work sites.

If your trade is required to hold public liability, then the answer to our question is pretty simple.  Clearly public liability is going to be the most important to you!

But let’s say you are not required to hold public liability for your trade or state, and you don’t work on any sites that have insurance requirements.

Now we’re simply looking at it as an optional form of insurance.

What public liability covers you for is the financial fallout from your negligence which results in property damage or personal injury to a third party.

Insurance Claim

This might be as simple as breaking someone’s window and needing to pay for a replacement, right through to causing someone’s death and being liable for millions in compensation.

Ultimately, public liability is the one form of insurance that’s going to save your wallet (or your house) if something goes wrong.

Whilst it’s clearly a very important form of insurance, it is also one that the average tradie is unlikely to ever need to claim on.

So is it worth skimping on public liability and spending your money on a form of insurance that you’re more likely to claim on…?

Tool insurance

At Trade Risk we deal with more tool insurance claims than any other insurance type.

Stolen Tools

Considering only a small percentage of our clients have tool insurance, that makes the claim rate pretty high.

Tool theft is rampant in Australia right now, with tradies having their gear stolen every day.

Shane from Trade Risk was interviewed on Melbourne radio about rising rates of tool theft just last month.  You can check that out here.

If you were going to class one form of tradies insurance as the most important, and you based that on the likelihood of making a claim, then tool insurance just might come out on top.

Income protection

The last of the big three is income protection insurance.

At Trade Risk we don’t deal directly with income protection, however it is a very important form of tradies insurance and we can refer you to a specialist.

Income protection is generally the most expensive form of insurance for a tradesman, but the benefits can be invaluable in the event of a claim.

Thankfully, the typical tradie is probably not going to suffer an injury or illness that keeps them off the tools for more than 30 days.

We mention 30 days, as that is the waiting period for a typical tradie’s income protection policy.  This means you need to be unable to work for 30 days before you can start claiming.

If you’re off the tools for just a couple of days, or even a few weeks, you’re probably not going to be able to claim.

So the odds of claiming on your income protection are fairly low (thankfully) but if you are unlucky enough to have to claim, the benefits can be huge.

Say you suffered a serious injury or illness that kept you off the tools for a few months or a few years, how would you survive?

As a self-employed tradie you’d have no sick leave, and most likely no access to workers compensation.

You’d could be financially ruined by not being able to work for that amount of time, which could be life changing for you and your family.

Income protection would save you from all of this, by replacing the bulk of your income until you’re able to get back on the tools.

So like public liability insurance, you might not be as likely to make a claim, but if you do need to claim it can be an absolute life saver.

Which is the most important?

Now that we’ve covered each of the main three forms of insurance, which is the most important?

Argument for public liability:

Whilst you might be less likely to claim on public liability, the protection it can provide is huge.

The minimum amount of cover is $5 million, and for a typical tradie the cost can be as low as $400, so it’s an incredibly good value form of insurance.

Argument for tool insurance:

Tool insurance is also relatively inexpensive, and it’s also the one form of trade insurance you’re most likely to claim on.

Seems like an easy decision in favour of tool insurance then?  Not so fast…

The big difference is in the amount of potential cover.

We find that most tradies have somewhere between $5,000 and $20,000 worth of tools and equipment, excluding their trailer.

If you lost all of that it would be a massive kick in the guts, but it probably wouldn’t send you broke or cost you your house.

A public liability claim on the other hand can climb into the hundreds of thousands, and potentially millions in the event of loss of life.

So not having tool insurance could cost you a lot, but not having public liability insurance could cost you everything.

If we had to choose between one of the other as a self-employed tradie, we’d be going for public liability given the much, much larger potential exposure.

Of course the best course of action would be to have both public liability and tool insurance.

Argument for income protection:

Then we have the other option to consider, income protection insurance.

As mentioned earlier we don’t deal specifically with this form of insurance, but we do have a referral partner who can assist.

So is income protection any more important than public liability and tools?

Like public liability, it is less likely that you’ll claim on income protection, but the potential size of a claim can be enormous.

Say you’re a 25 year old electrician and you suffer a life changing injury that leaves you unable to work ever again.

If you had a good quality income protection policy with a benefit period that runs through to age 65, you’re potentially looking at a claim that cover 40 years worth of income!

That’s most likely to be a multi-million dollar amount over the life of the claim.

Of course the vast majority of tradies will thankfully never suffer such a serious injury, but it’d be nice to know you’re protected financially if it did happen.

So income protection is just as important as tool insurance and income protection in terms of the coverage it provides.

It is more expensive than the other two though, and will continue to get more expensive the older you are.

Conclusion

For the vast majority of Trade Risk clients, the most common form of insurance is public liability.

Many of them need it for their licence, some need it for the sites they work at, and many simply like the protection that it provides to them.

Is it the most important?  In our opinion it is the most important form of insurance for tradies.

Tool insurance and income protection aren’t far behind though, and both are also incredibly important forms of insurance.

If you’d like more information or a quote on any of these forms of cover, please get in touch with us.