Business Insurance Explained: What Small Businesses Actually Need

For most Australian small businesses only two insurances are compulsory: workers compensation once you hire someone, and compulsory third party injury cover on any vehicle, which comes bundled with the registration. Everything else, from public liability to cyber, is technically optional, but much of it becomes unavoidable the moment a landlord, council or client asks for a certificate of currency. Here's what each policy covers, which ones you can't legally skip, and what they roughly cost in 2026.

Three buckets: legally required, contractually required, sensible

Sorting insurance this way stops you buying things you don't need and skipping things you do.

Bucket	What's in it	Who decides
Legally required	Workers compensation (once you employ), CTP on vehicles, public liability for certain licensed trades in some states, professional indemnity for certain regulated professions	Parliament and your state regulator
Contractually required	Public liability (often $10m or $20m), sometimes professional indemnity, sometimes specific sums insured on leased premises	Your landlord, council, head contractor or client
Sensible	Business pack (contents, stock, business interruption), product liability, cyber, tools, personal accident or income protection for you, management liability for companies	You, based on what would actually sink the business

Business.gov.au puts it plainly: the common compulsory covers are public liability "which some states and territories need for certain occupations", workers compensation if you have employees, and third party personal injury insurance if your business uses vehicles. A sole trader with no staff, no vehicle and no licensed trade is required to hold nothing at all. That isn't the same as needing nothing.

Public liability

Public liability pays when your business activities injure someone or damage their property, plus the legal costs of defending the claim. A client trips on a cable in your studio, your ladder goes through a shop window, a coffee lands on a customer's laptop. It's the policy nearly every business ends up holding.

Nobody will ask whether you have it. They'll ask for a certificate of currency, usually showing $10 million or $20 million of cover, before a council approves a market stall, a landlord signs a lease, a real estate agency lets you into a rental or a builder lets you on site. As a sole trader you also have no corporate shield, so a serious claim lands on your house and savings; our guide to choosing a business structure explains why that matters.

Price is driven mostly by occupation. Insurers rate the claims history of your trade, so a home-based bookkeeper pays a fraction of what a scaffolder pays, with turnover, staff numbers and your own claims record moving it from there.

Product liability

Product liability covers injury or damage caused by something you make, import, sell or supply, even if you didn't manufacture it. Candles, food, cosmetics, kids' products, anything imported: you need it. Most insurers bundle it with public liability as a single "broadform liability" policy, so check your schedule rather than assuming.

Professional indemnity

Professional indemnity (PI) covers claims that your advice, design or professional service caused a financial loss, and the cost of defending them. It's for consultants, designers, bookkeepers, marketers, IT providers, engineers, allied health practitioners and anyone else paid for their judgement rather than their labour.

For some professions it's mandatory. Registered tax and BAS agents must hold PI that meets Tax Practitioners Board requirements, financial advisers need it under their licence conditions, lawyers must carry it in every state, and some building licence classes (Queensland's QBCC, for example) require it. It's one reason a registered BAS agent costs more than a bookkeeper.

Two traps. PI is written on a "claims made" basis, so it only responds if the policy is active when the claim arrives, not when the work was done; cancel it the day you close the business and a claim six months later has no cover, which is why retiring professionals buy run-off cover. And PI and public liability aren't interchangeable: one covers bad advice, the other physical harm. Most service businesses need both.

Workers compensation: compulsory once you hire

Workers compensation covers employees' medical costs and lost wages if they're injured or become ill through work. It's compulsory in every state and territory, each running its own scheme, and it's the one insurance you can be penalised for not holding. Put it on the list before day one, alongside super, STP and the Fair Work paperwork in our first employee checklist.

State or territory	Scheme	Small-employer exemption	Key rule
NSW	icare (regulated by SIRA)	Yes: $7,500 or less in annual wages, no apprentices or trainees, not part of a group	Above the threshold a policy is required; uninsured claims are paid by the scheme, then recovered from you
Victoria	WorkSafe Victoria	Yes: $7,500 or less in annual remuneration and no apprentices or trainees	One apprentice means you must register regardless of payroll
Queensland	WorkCover Queensland	No	Policy required within 5 business days of employing anyone
WA, SA, Tas, ACT, NT	WorkCover WA, ReturnToWorkSA, WorkSafe Tasmania, WorkSafe ACT, NT WorkSafe	Rules and any thresholds differ; check your regulator	Cover is required from your first employee and in most of these jurisdictions is bought through approved private insurers

Figures as at September 2026; thresholds are reviewed periodically, so confirm before relying on an exemption.

Contractors muddy this. Many schemes deem certain contractors to be "workers", especially sole traders who work mostly for you without staff of their own. Ask the regulator rather than assuming an ABN settles it.

Skipping it is expensive. In NSW an injured worker of an uninsured employer is still paid through the scheme, which then bills the employer for the full cost. Victoria makes uninsured employers back-pay the premium, reimburse any compensation WorkSafe paid and pay a penalty on top. One injury can cost more than a decade of premiums.

And workers compensation does not cover you if you're a sole trader. You're not an employee of your own business. See "Covering yourself" below.

Business pack: contents, stock and business interruption

A business insurance pack bundles the property covers premises-based businesses need: contents and fit-out, stock, glass, theft, money, often machinery breakdown and "general property" for tools you carry around. Landlords usually require you to insure your own contents and fit-out and to note their interest on the policy.

The section owners most often skip, and most often regret, is business interruption. It replaces lost gross profit and pays ongoing costs like rent and wages while you can't trade after fire, storm or flood. Rebuilding takes months; the rent doesn't pause. If a forced closure would drain your reserves, read our guide to cash flow management, then price the cover.

The classic mistake is underinsurance: nominating a sum insured that's too low, then finding the payout scaled down in proportion. Value contents and stock at replacement cost and update it every renewal.

Cyber insurance

Cyber insurance covers the cost of responding to a data breach, ransomware or business email compromise: forensic IT, legal advice, notifying customers, lost income and third-party claims if customer data leaks. The Australian Signals Directorate's latest Annual Cyber Threat Report put the average self-reported cost of a cybercrime incident for a small business at around $56,600 (2024–25 reporting period).

Insurers now expect basic hygiene before quoting: multi-factor authentication on email and banking, offline backups, patched software. Without them you'll be declined or pay far more. If you hold customer data, take payments online or would be stuck without email and accounting, price it. A small business with a clean set-up typically pays in the low thousands a year for $1 million of cover (as at September 2026).

Covering yourself: personal accident and income protection

A sole trader who breaks a wrist has no income until it heals. Two products fill the gap:

• Personal accident and illness insurance pays a weekly benefit, usually a percentage of your income for a set period, if injury or illness stops you working. It's built for the self-employed and often sold alongside public liability.
• Income protection does a similar job with longer benefit periods and more underwriting. Premiums for a policy held outside super are generally tax deductible and benefits are assessable income; premiums paid through your super fund aren't deductible to you personally. Life, trauma and TPD cover are separate and not deductible.

For the rest of what you can claim, see sole trader tax deductions.

Vehicles, tools and management liability

CTP covers injury to people and comes with registration; it does nothing for your ute, the other car or the tools in the back. If a vehicle is used for work, tell the insurer, because a personal comprehensive policy can decline a claim made while carrying stock or driving to a job. Tool cover usually comes as a general property add-on, with theft-from-vehicle conditions that require the vehicle locked and tools out of sight. Management liability, for companies, covers directors and the company against unfair dismissal, discrimination and directors' duties claims; it's rarely needed on day one but becomes relevant once you employ people.

What it roughly costs (as at September 2026)

Premiums vary enormously by occupation, turnover, location, claims history and sum insured. Every figure below comes from insurer and broker published ranges, not a quote for your business. Treat them as a sanity check, not a budget.

Cover	Typical small-business range	Notes
Public liability ($5m–$10m)	About $400–$1,500 a year	Low-risk sole traders such as cleaners and handymen often $600–$900; electricians, plumbers and carpenters often $800–$1,500; scaffolding, demolition and earthmoving $1,500 and up. One insurer's 2026 example: a handyman sole trader on about $65,000 turnover quoted around $573 for $10m and $614 for $20m
Professional indemnity ($1m)	About $80–$100 a month for a solo operator; $700–$3,000 a year across professions	One large comparison site's average across all policies was about $103 a month (July 2024 to June 2025 data): bookkeeping and accounting around $62, consultants around $88, architecture and engineering around $210
Cyber ($1m)	About $1,000–$3,500 a year	Lower with MFA, backups and no claims; much higher for larger turnover or sensitive data
Workers compensation	Percentage of wages	Rate set by your state scheme and industry classification
Business pack	Depends on sums insured	A home-based consultant with a laptop pays little; a cafe with $150,000 of fit-out and stock pays far more

Stepping up from $10 million to $20 million of public liability is often cheap, as the example shows, so if any client is likely to ask for $20 million, buy it from the start. Premiums for all of these are generally deductible business expenses.

Broker or direct?

Buy direct if the business is simple and low-risk, you know which covers you need and a standard occupation dropdown describes what you do. A sole-trader graphic designer buying PI and public liability rarely needs a broker.

Use a broker when you have staff, premises, vehicles, contracts that specify wording and limits, an occupation the online forms don't fit, or a claims history. A broker's job is to understand your risks, find cover that actually fits and fight your corner at claim time. Brokers must hold an Australian financial services licence (or be an authorised representative of one). Most are paid by commission from the insurer, typically around 10-20% of the premium; some charge a fee instead or as well. Either way they must give you a Financial Services Guide explaining how they're paid. The National Insurance Brokers Association runs a free Need a Broker search.

Whichever route you take, read the Product Disclosure Statement for the exclusions rather than the brochure for the promises, and answer every question honestly. Non-disclosure is the most common reason claims are refused. Three other claim-killers: describing your business too narrowly, using subcontractors without collecting their certificates of currency, and letting PI lapse between jobs.

Key takeaways

• Only workers compensation (once you employ) and CTP on vehicles are compulsory for most businesses; public liability and PI are mandated only for certain licensed trades and regulated professions.
• Legally optional isn't practically optional: landlords, councils and clients will demand $10m or $20m of public liability before you can work with them.
• Workers compensation is state-based. NSW and Victoria exempt employers paying $7,500 or less a year with no apprentices; Queensland requires a policy within 5 business days of hiring; check your own regulator.
• Workers compensation never covers the owner. Sole traders need personal accident and illness cover or income protection for their own income.
• Rough 2026 costs: public liability $400–$1,500 a year, PI around $80–$100 a month for a solo operator, cyber from about $1,000 a year, all heavily dependent on trade and turnover.
• Buy direct for a simple low-risk business; use a broker once you have staff, premises, contracts or an unusual occupation. Either way, read the PDS and disclose everything.

Where to get help

• business.gov.au: plain-English rundown of insurance types, which are compulsory, and links to every state and territory workers compensation regulator.
• Your state workers compensation regulator: icare and SIRA (NSW), WorkSafe Victoria, WorkCover Queensland, WorkCover WA, ReturnToWorkSA, WorkSafe Tasmania, WorkSafe ACT and NT WorkSafe publish who must register, thresholds and premium rates.
• Moneysmart (ASIC): independent guidance on buying insurance, reading a PDS and checking a broker's or insurer's licence on the financial services registers.
• National Insurance Brokers Association (NIBA): free Need a Broker search for licensed brokers near you.
• Australian Financial Complaints Authority (AFCA): free dispute resolution if an insurer or broker refuses a claim you believe is covered.
• Your accountant for which premiums are deductible and how to structure income protection; your lawyer for the insurance clauses in leases and client contracts before you sign.