Insurance Due Diligence When Buying a Business in Australia: What to Check and When

Insurance due diligence when buying a business in Australia means reviewing every insurance policy held by the target business — public liability, workers compensation, commercial vehicles, equipment, and professional indemnity — to understand what coverage exists, whether it transfers to a new owner, and what gaps you'll need to fill before settlement day. In Australia, most insurance policies do not automatically transfer when a business changes hands. You need your own policies in place from the moment settlement completes. Most buyers think about this the week before settlement. That's too late.

This piece is specifically about small business acquisitions — the kind of trades, service, and blue-collar businesses that typically sell for under $3 million in Australia. M&A insurance for private equity transactions is a different world entirely.

Why insurance comes last (and why that's a problem)

When you're buying a business, your attention is naturally on the financials. Is the revenue real? Are the margins sustainable? What does the EBITDA look like after you strip out the owner's personal expenses? Insurance feels administrative by comparison — something to sort out after you've confirmed the deal makes sense.

That instinct is understandable. It's also wrong.

Insurance issues typically surface in one of two ways: during operational due diligence when you're reviewing the business's contracts and compliance, or after settlement when something goes wrong and you discover the coverage situation wasn't what you assumed. The second scenario is much worse.

A broker I know told me about a deal where the buyer settled on a landscaping business on a Thursday. By Monday, a worker had a back injury on a job site. The buyer assumed they were covered under the seller's workers compensation policy — they hadn't thought about it at all, frankly — but the policy had been cancelled two months earlier due to non-payment of premium. The seller hadn't disclosed this. The buyer was now running an uninsured business and had an injured worker. It was not a fun week.

This is rare, but the less dramatic version — finding out your insurance costs will be significantly higher than you modelled, because the seller's rates were wrong or their coverage was inadequate — happens regularly.

The policies you need to check

Not every business carries every policy, and what's required varies by industry. But for most Australian small businesses, especially in trades and services, here's what to look for:

Public liability insurance covers claims made against the business for injury or property damage caused to third parties — customers, members of the public, or anyone else. For a trades business, this is non-negotiable. Minimum cover is typically $5 million, though many contractors and clients require $10 million or $20 million. Ask for the current policy schedule and confirm the limit.

Workers compensation (WorkCover) is compulsory if the business has employees. In Australia, it's administered state by state — WorkSafe in Victoria, iCare in NSW, WorkCover Queensland, and so on. The premium is calculated based on the business's industry classification, wages, and claims history. The claims history part matters a lot: a business with a poor claims record will have a higher premium rate, and that rate follows the business, not the owner. When you buy the business, you inherit that claims history.

Commercial vehicle insurance covers any vehicles the business owns or uses for work — utes, vans, trailers, work vehicles. Check whether vehicles are listed on the policy and whether the cover is comprehensive or third-party only. Also check whether subcontractors' vehicles are covered or whether they're expected to carry their own insurance.

Tools and equipment insurance (sometimes called portable tools insurance) covers tools and equipment taken off-site. For a trades business with expensive diagnostic equipment or specialised tools, this can be substantial. Check the sum insured against the actual asset register.

Business interruption insurance covers lost income if the business can't operate — usually due to fire, flood, or other insured event. Many small businesses don't carry it, but it's worth noting if they do and whether you'd maintain it.

Professional indemnity insurance is relevant if the business provides advice or professional services — building inspectors, engineers, certifiers. Less common in pure trades, but increasingly required for businesses that produce compliance documentation.

Policy transferability — the number one mistake

Here's what catches most buyers: insurance policies in Australia are not assets that transfer with the business. When you buy a business, the seller's insurance policies remain with the seller (or their company, if it's a company sale). You need to arrange your own policies as the new owner.

This matters for asset sales most of all. If you're buying the assets of the business — the tools, equipment, vehicles, customer contracts, goodwill — the seller's company remains intact with its insurance intact, and you're starting fresh as a new entity with no insurance history.

For share sales, the situation is technically different: you're buying the company, so the company's policies remain with the company. But policies often have change-of-control clauses that require notification to the insurer, and in some cases the insurer can void the policy or reprice it on a change of control. Always check. Your solicitor should flag this as part of legal due diligence, but the practical insurance implications are worth reviewing separately.

The practical takeaway: get insurance quotes sorted at least four to six weeks before your target settlement date. That gives you time to actually compare options, ask questions about the policy terms, and have cover in place and confirmed before you take ownership.

Pre-existing claims

Pre-existing claims — claims that were lodged under the seller's policy before settlement — are generally the seller's problem, not yours. The seller's insurer handles them; you're not exposed. But they're still worth understanding.

A business with a pattern of claims tells you something about how the operation is run. Three public liability claims in four years suggests a workplace that's either genuinely dangerous or has staff who aren't following safe work practices. Either way, you'll want to understand the circumstances.

More importantly: if there are outstanding claims — claims lodged but not yet settled — you want these disclosed before settlement and ideally resolved. An outstanding workers compensation claim in particular can drag on for years and may affect the seller's policy terms in ways that carry implications if you're doing a share sale.

Ask the seller directly: "Are there any outstanding insurance claims, and have there been any claims in the past three years?" Then verify this with the insurer directly if you can, or at least ask for copies of claim records. This should be part of your employee entitlements due diligence for workers comp claims specifically.

Workers compensation rates and industry classification

Workers compensation premiums in Australia are calculated as a percentage of wages, and that percentage varies based on the industry classification assigned to the business. A landscaping business might pay a different rate depending on whether it's classified as garden maintenance or civil construction. The classifications aren't always obvious, and they're not always correct.

If the seller has been incorrectly classified at a lower-risk category, their workers comp premium will be lower than it should be — and when you register as a new employer, you'll be classified correctly and pay a higher rate. This happens. It's not fraud on the seller's part, necessarily; WorkCover classifications are complex, and businesses sometimes slip into the wrong category and stay there. But the financial impact on your modelling can be material.

Get a quote from your state's workers compensation authority as part of due diligence. Give them the business's primary activities, the number of employees, and the wage bill. Compare that to what the seller is paying. If there's a meaningful gap, find out why.

What to ask the seller

The questions that matter:

Can you provide schedules for all current insurance policies, including expiry dates and premium amounts?
Have there been any insurance claims in the past three years? If so, what were they for and how were they resolved?
Are there any outstanding claims?
Have any policies been declined for renewal by an insurer?
Are there any insurance requirements in customer contracts or subcontractor agreements?
For the vehicles — are they fully listed on the policy? Any incidents or at-fault claims?

The last question on customer contracts is often overlooked. If the business has commercial clients — think property managers, builders, strata companies — those contracts may specify minimum insurance levels. You need to meet those levels from day one. A certificate of currency (the formal document proving you have current insurance) is often required before you can start work.

This is Module 5 territory — the kind of operational due diligence that goes beyond just checking the financial statements. You'll find more on structuring this process in Module 5 of the Playbook.

Want the full checklist? The operational due diligence checklist covers insurance, contracts, equipment, staff, and workplace compliance in one document. Grab it free at /resources/operational-due-diligence-checklist-buying-business-australia.

Sorting your cover before settlement day

The practical steps, in order:

First, collect all policy schedules from the seller. Do this as part of your due diligence request list, not as an afterthought.

Second, contact an insurance broker — not a comparison website, an actual broker who works with small business — and give them the business profile. Ask them to quote on public liability, workers comp, commercial vehicles, tools, and any other relevant lines. This takes time. Brokers need to gather information, go to market, and come back to you.

Third, once you've confirmed the deal is proceeding, lock in your policies. You want written confirmation of cover in place, with your settlement date as the commencement date.

Fourth, on settlement day, obtain and keep a certificate of currency for each policy. You may need these immediately for existing contracts and suppliers.

The first 90 days after buying a business are already busy enough without discovering you're underinsured or uninsured. Sort it before you settle.

A note on industry-specific requirements

If you're buying a trades business — plumbing, electrical, building, air conditioning — there are often licensing and insurance requirements tied to the licence itself. Licensed plumbers in NSW, for example, must carry certain levels of insurance as a condition of their licence. If the seller's licence doesn't transfer to you (and it usually doesn't), you need to check what insurance requirements attach to your own licence or the licence of the tradesperson you're relying on.

This intersects with the licence and permit review that should be part of your due diligence anyway. Don't treat these as separate exercises.

FAQ

Does insurance transfer when you buy a business in Australia? No. Insurance policies in Australia do not automatically transfer to a new business owner. Whether you're buying assets or shares, you should arrange your own insurance policies to commence from settlement day. In a share sale, the company's policies remain with the company but must be reviewed for change-of-control clauses.

What insurance does a small business need in Australia? Most Australian small businesses need public liability insurance (minimum $5 million, often $10-20 million for trades), workers compensation for all employees, commercial vehicle insurance for business vehicles, and tools or equipment insurance for portable assets used on site.

Who is responsible for workers compensation claims made before settlement? Claims lodged before the settlement date are generally the seller's responsibility and handled under the seller's policy. However, outstanding claims should be disclosed during due diligence, particularly in a share sale where you're acquiring the company with its claims history intact.

How early should I sort insurance when buying a business? Start getting quotes at least four to six weeks before your target settlement date. Insurers need time to assess the risk and prepare terms, and you want confirmed cover well before settlement day rather than scrambling in the final week.

Can the seller's insurers give me information about the business's claims history? Generally not — they have a duty of confidentiality to the policyholder (the seller). The seller needs to disclose claim records directly, or provide authorisation for their insurer to speak with you. Request this as part of your formal due diligence documentation.

If you want to follow along with how I'm thinking about buying and running blue-collar businesses in Australia, The Leveraged Worker newsletter is where I share the unpolished version — deals I'm looking at, mistakes I've made, and what I'm learning. Subscribe at /blog.