When you’re running a business, not everything is in your control. Business insurance can help mitigate this, so if something does go wrong you should be covered financially.
Our guide explains when you need insurance and how to create a policy that protects your business.
Why do I need business insurance?
There are a few reasons why business insurance can be a good idea:
- If someone claims against your business, the right type of insurance might save you thousands of pounds in legal fees and compensation costs.
- Employers’ liability insurance and business car insurance (or commercial vehicle insurance) are required by law if they apply to your business.
- It can help you replace tools and key equipment if they are lost, stolen or damaged.
- It can show your employees, clients and customers that you take your work, and their safety, seriously.
- Potential clients may insist on certain policies being in place before they are willing to work with you.
- Some professional organisations and regulatory bodies have business insurance as a condition of their membership.
» MORE: What is employers’ liability insurance?
Is business insurance a legal requirement?
Employers’ liability insurance is the only business insurance you need by law, and only if you have employees. (In Northern Ireland, it’s called employers’ liability compulsory insurance.) However, to meet traffic and road safety legislation you and your employees will also need to have motor insurance if anyone drives a vehicle on public roads for work purposes.
Employers’ liability insurance
If you employ anyone who is UK-based and not a member of your family, you need at least £5 million of employers’ liability insurance. If you are a limited company, you need this regardless of whether you only employ family members. If you don’t, you could face a fine for each day you’re not covered. You also won’t be covered for compensation or legal costs if a current or former employee takes legal action after they are ill or injured through their work.
Business car insurance or commercial vehicle insurance
You don’t need specific business car insurance just to commute to and from a permanent place of work. But if you drive to meetings or other sites to do business, or make deliveries and collections, you need it by law. Any employees using their car for work will also need to tell their insurer.
If your vehicle is the main focus of your business, you’ll need commercial vehicle insurance. The level of cover you need depends on the number of drivers, how far you drive and the nature of the work. For example, if you make deliveries or carry passengers, you legally need hire and reward insurance. To cover what you are carrying, you need goods in transit cover.
Other types of cover aren’t a legal requirement but might be standard for your industry. Some
chartered bodies and regulators in some sectors, such as accountancy, engineering and healthcare, ask that you have professional indemnity insurance.
What happens if I don’t have business insurance?
If you don’t have employers’ liability insurance and your business has employees, you could be fined up to £2,500 for every day you’re not covered. So this one is a must.
Otherwise, the main risk of not having business insurance is financial. Without business insurance, you will have to pay for any legal or compensation claims out of your own pocket if something goes wrong. Or you would have to shoulder the cost of replacing your tools, equipment or stock if they are stolen or damaged after an unexpected event.
Smaller businesses are potentially hit hardest if they don’t have business insurance. This is because they are unlikely to have the spare funds to cover any compensation claims or major damage.
» MORE: What insurance do I need for a small business?
What business insurance do I need?
There is no one-size-fits-all business insurance. You could need a number of types of business insurance policies or just a single type of cover depending on the risks you need to insure.
Your policies can cover anything from human error to the loss of income if your business can’t operate as usual after an unforeseen event.
Ultimately, what business insurance you need, or legally require, will depend on the kind of risks your business faces.
» MORE: What is business insurance?
Types of business insurance
Apart from employers’ liability insurance and business vehicle insurance, some of the most common types of business insurance include:
Public liability insurance
This is designed to cover claims made against your business by someone outside the business. This includes clients, visitors, and the general public, and it would come into play if someone is injured or dies due to your business or their property is lost or damaged.
Product liability insurance
This protects against claims for injury or damage caused by products your business has created, sold or given away. Even if your business didn’t make the items, you can still be held accountable, so it’s an important consideration if your business supplies goods.
Professional indemnity insurance
This helps protect your business if you cause financial loss to your client. This might be through poor professional advice, a design error or a breach of confidential information, for example.
Depending on your industry, professional indemnity insurance is a must for some chartered bodies and regulators. So even though you don’t need it by law, it might be mandatory for your business to win contracts and be a part of key professional associations.
Other types of business insurance
Beyond liability cover, you might want to look for policies to match other risks your business faces. Some examples of these include:
Business interruption insurance
This protects against lost income if something unexpected prevents you from operating as usual. This is usually after property damage caused by fires and floods or when equipment breaks down.
Other events, such as outbreaks of disease meaning you can’t access the premises, may also be included, but check the provider’s documents carefully. Also look at how long you would be covered for lost income (the maximum indemnity period) and specifics such as whether damage at a supplier’s premises is also covered.
» MORE: How does business interruption work?
Commercial buildings and contents insurance
Commercial buildings insurance helps protect you from the cost of repairing or rebuilding premises after damage from unexpected events such as floods, fires and burst pipes. If you don’t own the building and you’re renting, it’s your landlord’s responsibility to arrange buildings cover.
Business contents insurance, meanwhile, covers what is inside your premises, such as your equipment and stock.
This is financial protection if your IT systems and networks are hit by cyber breaches, such as malware, phishing or hacking. Cyber insurance can include damage to data and software, breach of customer information and damage to your customers’ digital assets. If you mostly operate online or hold a lot of sensitive data, you might want to consider it to help you recover financially afterwards.
Do I need business insurance to work from home?
You don’t need to have business insurance just because you work from home, unless you employ people who aren’t members of your family. Even so, tell your home insurance provider if it affects any cover you already have in place.
Some types of cover could be a good idea, though. For example, if you regularly have business visitors to your home, you may want to look into the cost of public liability insurance.
For some professions, such as consultancy or accountancy, professional indemnity insurance is a must your regulatory body might insist on.
And if you sell any goods as part of your home-based business, you may want to consider product liability insurance.
» MORE: Guide to insurance for a home business
How much business insurance do I need?
The level of business insurance you need depends on the risks your business faces and which risks you want to protect yourself from. There are a number of types of policies available, so you will want to match those to your operation.
Remember, if you hire even one UK-based employee who is not a family member, you will likely need an employers’ liability insurance policy to cover you for at least £5 million. You’ll also need the right vehicle insurance if you use a car or other vehicle for work purposes.
If you need business insurance to join a regulatory body or professional organisation, it should offer guidance on the minimum level of cover you need.
Other than that, how much business insurance you take out is up to you and should be right for the risks your business faces and what you can afford to pay in premiums.
How much does business insurance cost?
Business insurance could cost anywhere from under £10 a month to thousands of pounds a year, depending on the type of business activities being carried out. A 2022 report by the Federation of Small Businesses (FSB) found that half (50%) of small businesses it surveyed paid under £2,000 a year for combined business insurance policies.
But what you will pay depends on factors specific to your business. When they decide your premiums, insurers will consider:
- the amount of cover you’re buying
- the size of your business
- the specific challenges and risks of your sector
- your claims history
- how well you run your business, such as evidence of risk assessments
On top of your premium, you usually pay an excess if you make a claim. Your excess amount can depend on the cover and claim type, and is fixed when you take out the policy. Make sure you can afford the premium and any excess you might need to pay in the long run.
» MORE: How Much is Business Insurance?
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