7 min read

What business insurance do I need?

Whatever business you’re in you’ll need to take out insurance. Here’s what you should know about the different types and how much business insurance you may require.

Why do I need insurance for my business?

Disasters don’t just happen to other businesses. No matter how careful you are, accidents and incidents – such as fires, theft, illness and legal claims – can strike at any time. The results can include loss of income, unexpected outgoings and business disruption.

It’s easy to underestimate the problems that can be caused by major incidents. For example, a flood can damage – or even destroy – property, stock and equipment. It can also mean a loss of business if customers go elsewhere.

Making sure that you’ve got the right small business insurance and adequate levels of cover will help protect your business. And be aware: some types of insurance are not optional – if you don’t have them you’re breaking the law.
 

What types of insurance are there?

There are many different types of insurance for small businesses.

Building and contents insurance

If you have business premises you’ll need to insure the contents including equipment and stock. If you own the building you’ll need insure this too. If you run your business from home you should check that your home insurance policy covers your business activities.

Motor insurance

Just as it’s illegal to drive your private car without insurance, the same applies to company vehicles.

Employers’ liability insurance

This protects you against compensation claims made by employees for injury or damage that happens in the course of their work. For example, a worker falls down the stairs and breaks their ankle, or someone suffers from repetitive strain injury (RSI) from working on a computer. Read more about employers’ liability insurance.

Public liability insurance

This covers your business in the event of claims against you by customers or members of the public for injury or property damage that happen because of your activities. For example, a shop customer makes a claim after their clothes are damaged by an item falling onto them from a shelf, or a passer-by takes action after tripping over some goods that you were delivering.

Product liability insurance

This is designed to cover claims brought against you for injury or damage caused by a product you’ve provided. For instance, a parent claims against a toy shop after their child is hurt by a toy that has a manufacturing fault. (Product liability is sometimes combined with public liability in a single policy).

Professional indemnity insurance

This is designed to protect against customers who claim to have suffered a financial loss as a result of a professional mistake in the services you’ve provided or the advice you’ve given. For instance, a marketing agency puts the wrong phone number in a printed advert so the client makes a claim for the costs of reprinting. Read more about professional indemnity insurance.

Equipment and tool insurance

If you’re a tradesperson you’ll want to insure plant and tools against damage, breakdown and theft. Whatever your type of business you may want to insure computers, mobile devices, etc. Some contents insurance policies may also cover portable items such as mobile phones.

Personal accident and sickness insurance

This can cover medical expenses, the costs of additional staff to cover absence, and the day-to-day operating costs of keeping the business running if you or a key employee are unable to work.

Business interruption insurance

This is designed to make up the difference between actual income and expected income if your business activity is disrupted by an unforeseen event such as fire or theft. It may also cover additional costs you face to continue operating your business, such a setting up temporary premises or taking on extra staff.

Legal insurance

This aims to provide cover for legal expenses in the event of actions such as health and safety prosecutions, contract disputes, HMRC tax investigations, etc.

Jury service insurance

Smaller businesses tend to be dependent on the availability for work of one or two key individuals. This type of insurance protects against the impact of these people being called for jury service.

Sector-specific insurance

Many industry sectors and professions have their own particular insurance requirements. For example, property rental, IT, pubs, hotels, restaurants, takeaways, entertainment, media, retailers and manufacturers.
Building and contents insurance

If you have business premises you’ll need to insure the contents including equipment and stock. If you own the building you’ll need insure this too. If you run your business from home you should check that your home insurance policy covers your business activities.

Motor insurance

Just as it’s illegal to drive your private car without insurance, the same applies to company vehicles.

Employers’ liability insurance

This protects you against compensation claims made by employees for injury or damage that happens in the course of their work. For example, a worker falls down the stairs and breaks their ankle, or someone suffers from repetitive strain injury (RSI) from working on a computer. Read more about employers’ liability insurance.

Public liability insurance

This covers your business in the event of claims against you by customers or members of the public for injury or property damage that happen because of your activities. For example, a shop customer makes a claim after their clothes are damaged by an item falling onto them from a shelf, or a passer-by takes action after tripping over some goods that you were delivering.

Product liability insurance

This is designed to cover claims brought against you for injury or damage caused by a product you’ve provided. For instance, a parent claims against a toy shop after their child is hurt by a toy that has a manufacturing fault. (Product liability is sometimes combined with public liability in a single policy).

Professional indemnity insurance

This is designed to protect against customers who claim to have suffered a financial loss as a result of a professional mistake in the services you’ve provided or the advice you’ve given. For instance, a marketing agency puts the wrong phone number in a printed advert so the client makes a claim for the costs of reprinting. Read more about professional indemnity insurance.

Equipment and tool insurance

If you’re a tradesperson you’ll want to insure plant and tools against damage, breakdown and theft. Whatever your type of business you may want to insure computers, mobile devices, etc. Some contents insurance policies may also cover portable items such as mobile phones.

Personal accident and sickness insurance

This can cover medical expenses, the costs of additional staff to cover absence, and the day-to-day operating costs of keeping the business running if you or a key employee are unable to work.

Business interruption insurance

This is designed to make up the difference between actual income and expected income if your business activity is disrupted by an unforeseen event such as fire or theft. It may also cover additional costs you face to continue operating your business, such a setting up temporary premises or taking on extra staff.

Legal insurance

This aims to provide cover for legal expenses in the event of actions such as health and safety prosecutions, contract disputes, HMRC tax investigations, etc.

Jury service insurance

Smaller businesses tend to be dependent on the availability for work of one or two key individuals. This type of insurance protects against the impact of these people being called for jury service.

Sector-specific insurance

Many industry sectors and professions have their own particular insurance requirements. For example, property rental, IT, pubs, hotels, restaurants, takeaways, entertainment, media, retailers and manufacturers.

What types of insurance for small businesses are compulsory?

Of the many types of business insurance, two are compulsory.

Employers’ Liability Insurance

If you employ anyone other than yourself, you must have employers liability insurance of at least £5 million of cover, or more depending on your business activity. (For more details about exceptions see Employers’ Liability Insurance.)

Motor insurance

Obviously, you need motor insurance for company vehicles – at least third-party. But don’t forget that if you or your employees use your own vehicles for business use – for instance, to travel to meetings – you need to make sure that you have specific additional insurance for this.

Where do I buy insurance?

Insurance can be bought by any of the following ways:

Direct from an insurance provider

Buying direct cuts out the ‘middle-men’ i.e. insurance brokers.

This can save money, but not always.

An insurance company will only recommend its own products, so make sure that you compare what’s being offered by different providers.

On the face of it, products from different companies may look the same but take care to read the small print so that you know precisely what’s covered and what’s excluded.

Through price comparison sites

You can buy business insurance through comparison sites, just as you can for home and car insurance.

Such sites save you the time and effort of shopping around for the best deal.

They get paid commission by the insurance provider so you won’t have to pay them a fee.

Comparison sites tend to cover the types of policies that small and medium size businesses most commonly need but they may not always have the specialist expertise for the insurance that’s right for your particular business.

Via an insurance broker

Brokers should be able to use their knowledge of a wide range of products from different insurance companies to identify policies that are right for your specific needs.

In the event that you do claim on a policy, brokers can deal with insurance companies saving you the hassle of doing it yourself.

Brokers either charge you a fee or get paid by the insurance providers, so don’t be shy about asking them how much they will make on a policy they recommend to you.

How much business insurance should I have at startup?

To start with you must have the two compulsory types of insurance:

  • Employers’ liability insurance – unless you meet conditions that exempt you, such as being the sole employee – see Employers’ Liability Insurance. 
  • Motor insurance – Company motor insurance would only be needed if you are using a company vehicle. If you use your own vehicle make sure that your personal motor insurance policy covers travel for work purposes

If your products or services could potentially cause harm or damage you need public liability insurance. The vast majority of businesses – including tradespeople and shop owners – make sure they have this, and also in many cases, product liability insurance.

Although it’s not compulsory, you should also very seriously consider taking out building and contents insurance, and if you are a tradesperson, equipment insurance.

If your business is of a consultancy nature – e.g. solicitor, accountant, architect, adviser – as well as public liability insurance you will need professional indemnity insurance (PI) – read more on Professional Indemnity Insurance. Some professional bodies will not accept you, and some clients will refuse to do business with you unless you have PI.

You may also need insurance that’s specific to your business. For example, a delivery company will need goods in transit insurance.

How much does business insurance cost?

The price of insurance depends on things like:

  • Your business activity
  • The geographical location you work in
  • The products or services you offer
  • The total amount you want to insure
  • The amount of excess you’re prepared to pay
  • The number of claims you’ve made in the past.

For example, the price a building contractor pays for employer’s liability and public liability insurance may be different to the price paid by a cleaning contractor for the same types of insurance. The cost to a roofing business may be significantly more than the cost to a decorating business because of the different levels of risk involved. And insuring for a total liability of £20 million will usually be more expensive than for say £5 million.

Should I buy a single policy or separate business insurance policies?

Many insurance providers combine different types of policies in a single package aimed at particular business types, for example, plumbers’ insurance, beauty salon insurance, architects insurance, etc.

The advantages of a combined policy include:

  • Simpler administration in respect of premium payments, renewal dates and claims, because you are dealing with just one insurer.
  • Avoidance of overlapping cover.
  • Economies of scale, which can result in lower premiums.

But make sure that a packaged set of policies meets your specific needs. If it doesn’t, talk to your broker or provider about tailoring it so it gives you precisely what you need. Any extra specific risks can be covered by adding specialist cover from the same provider, or by taking out an additional policy with another insurer.

Checklist: How can I keep the costs of business insurance down?

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