Insurance is a big—and sometimes, complicated—part of running a small business in Australia. There’s a whole bushel of things that could go wrong, and to ensure you have comprehensive coverage, you have to jump through multiple hoops. It doesn’t help that insurance companies operate with the singular goal of selling you more of their products, making it difficult to judge the level of coverage you really need. Before you commit to a certain type of insurance, it’s important to research and compare your options using an unbiased source. In this post, we’ll outline some of the basic small business insurance products available in the market today and how much coverage they offer.
Mandatory insurances for small businesses in Australia
There are three primary insurance products you must invest in if you intend to run a business in Australia.
- Workers' compensation
- Public liability insurance
- Third-party personal injury insurance
Depending on your industry and your business structure, you might need additional insurance policies that aren’t required by law. For example, if you run a trade business, certain workplaces may require you to have additional liability insurance before they employ your firm. Here's an industry-specific breakdown of additional requirements. Now let’s look at the three main types of insurance in more detail.
Workers' compensation insurance
This type of insurance is only applicable if you employ people. Employees include part-time and casual staff, family members who work for your business, and, in the case of farms and cattle property, any staff who are paid in lodging and food. Workers' compensation laws and requirements vary slightly in each state, however, they serve a single purpose: If your staff member is injured or loses their life on the job, this insurance will cover any expenses you incur in compensating for your worker, including health care and legal costs, and loss of income.
How much premium you pay as an employer depends on your industry and the risks associated with running your business. Naturally, trade businesses will have higher premiums and more stringent employer responsibilities.
A worker is anyone who has a working contract, written or oral, including contractors and part-time hires. For instance, if you hire a sole traders such as plumbers, caretakers, or cleaners, you may have to insure them. If you hire a labour-hire firm that allocates one of their staff members to attend to your needs, the owner/manager of that firm will take out insurance for that employee. Generally, you don’t have to apply for workers' insurance for most volunteer roles. However, Tasmania deems certain volunteer roles, such as police, firefighters, and ambulance staff as workers, requiring you to purchase coverage for them. If you employ students for their work experience, you only have to cover them for death and permanent disability.
Sole traders and partnership businesses: The workers' compensation mandate doesn’t apply to you if you’re the owner and only worker in your business. It also doesn’t apply to individuals in a partnership firm. In both of these cases, you can purchase optional personal insurance coverage.
Registered companies: Management can choose whether to include its board of directors and senior leaders as workers. If management doesn’t consider directors to be workers, it doesn’t have to take out a workers' compensation for these individuals. Optionally, the company can take out a management liability insurance policy. All other employees should be covered by workers' compensation insurance.
Trusts: A working beneficiary or trustee is entitled to workers' compensation, except when a trustee is the sole individual in that trust and doesn’t employ people.
Corporations and franchises: Large enterprises can choose to self-insure for workers' compensation. This means that if a worker raises a claim against you, you should have an internal team and process to manage that compensation claim, as opposed to a registered insurance provider. Each state or territory has specific requirements and fees for companies that wish to self-insure. Check your state or territory’s website for more information.
Distributed teams: You only have to have workers' compensation for your workers in the state they live in. For instance, if you have a sales team in NSW and a marketing team in the NT, you have to follow the NSW workers' compensation regulations for your sales team, and the NT’s regulations for your marketing team. If any of your employees relocate interstate, you have to change your workers' compensation policy to meet the requirements of their new state.
The workplace health and safety authorities in each state and territory have a list of certified insurance providers you can choose from. For more details on which rules and regulations apply to you, have a look through the guidelines of the state you operate and hire in.
- New South Wales
- Western Australia
- South Australia
- Australian Capital Territory
- Northern Territory
Public liability insurance
If your business directly sells products to end users or customers, you have to have public liability insurance.
This will cover any damages and legal costs you incur in the event of negligence. For example, it includes medical costs for damages your product has caused to your customers or the general public, legal costs you may incur during the process, and any compensation you’re ordered to pay a third party.
Third-party personal injury insurance
Also known as compulsory third-party insurance (CTP), this coverage is required by law if you own a motor vehicle in Australia. While NSW, QLD, and the ACT allow you to choose your CTP insurance provider, other states and the Northern Territory will include it in your vehicle registration fees.
It’s important to note that this insurance will only cover legal fees you're liable for if you accidentally injure someone while driving. It doesn’t cover any damages caused—either to you or the other person—during the accident.
You may want to consider a separate insurance policy to cover potential medical and rehabilitation costs in case of an accident.
Optional insurances for small businesses in Australia
It can be overwhelming to see the number of insurance products available today. For this blog, we’ve identified three types of small business insurances that may be most beneficial to SMEs. Each type includes several, often individual, insurance policies. Some providers will allow you to combine these into a bigger insurance package. We recommend analysing your options and being transparent about your needs with a trusted insurance advisor.
- Personal insurance
- Stock insurance
- Liability insurance
Personal injury or death
This can be an important safety net for small business owners. If you’re unable to go to work or conduct business as usual, this insurance will protect and help you during your recovery process. It offers coverage for:
- Medical costs of an accident or injury
- Permanent disability
- Chronic pain, and loss of work as a result of an injury
- Personal bills during recovery
In addition to the basic coverage offered by personal injury insurance, permanent disability insurance will cover any business losses, such as payroll and workplace rent you can’t pay because of your injury.
If you become permanently disabled, this insurance will ensure that your life and business can keep operating as usual for the next 12 months. For the first 6 months, you’ll receive 90% of your pre-tax income and for the next 6 months, 70% of your pre-tax income. How much you’ll receive depends on your business’ annual income statistics. This insurance is also known as income protection insurance.
Under this insurance, you’ll receive a lump sum in the event of serious injury or illness, such as cancer, traumatic head injury or accident, or cardiovascular complications. It’s also called critical illness insurance or recovery insurance, and is designed to help you meet your expenses during your recovery process.
All three of these personal insurance products have some overlap. Some providers may offer add-on benefits to basic products, Make sure to shop around to find what’s best for you.
If you manufacture, hold, or sell physical products, stock insurance will compensate for any loss of stock you may experience. These include:
Covers losses or damages to all assets within your workplace, including furniture, electronic goods, and machinery.
Covers physical and monetary assets specifically against theft.
Fire and flood insurances
Covers your business against losses incurred because of bushfires or floods. The amount you claim can help with your overall recovery efforts, including cleaning up, rebuilding, and repaying loans.
Unfortunately, many providers won’t offer flood insurance to businesses in heavily flood-prone areas. In that case, you can get an alternative insurance, such as contents insurance, which may still cover most of your needs.
Property in transit
This will cover stock damage and losses during transit.
Farm and livestock insurance
Exclusively for farms and animal properties, this insurance will cover you if you lose your animals in incidents like natural disasters and accidents during transport. It also covers unborn and premature animal deaths.
This is not an exhaustive list, and as with most insurances, your provider might combine some of these coverage options under one insurance policy.
This is an extension of the mandatory public liability insurance we discussed before. Under this umbrella comes a range of highly specific insurances such as:
Management liability insurance
This will cover your business directors and c-level executives against any personal liabilities they may incur. It includes damages and legal costs involved in alleged mismanagement, misallocation of resources, or misconduct. It also protects your business against severe fines or legal challenges imposed on an individual director by the public or employees of the company. Ultimately, this insurance acts as protection against any possible monetary threats to your business because of your directors.
Employee fraud insurance
This can cover you for any losses you experience because your employees have engaged in theft, forgery, or misallocation of assets. Employee fraud insurance doesn’t typically cover damages caused by directors and management. You may have to take out a separate policy for that, unless your insurance provider offers them together.
Product liability insurance
This is similar to public liability insurance, with some fine print. It's applicable only to businesses that manufacture and/or sell products. It’ll cover you for legal costs and damages, injuries, or losses that your products may cause your consumers.
Professional indemnity insurance
It’s much like product liability insurance, except it’s exclusively for businesses that offer services and consultations, such as advisors and psychologists. This insurance will cover you in case of legal challenges raised by your customers or the public, professional misconduct such as privacy and confidentiality breaches, damages caused by employee negligence, and any reputation damages.
Choosing the right insurance products for your business is hard. Reading through your contractual obligations and comparing your options is the best way to ensure that you’re getting what you want. We strongly recommend that you evaluate your business requirements and seek advice from a qualified and trusted insurance professional to discuss products that will suit you.