Do I Need Business Insurance?

Regardless of the size or type of your business, it is very likely that you will need some form of business insurance. The right policies can provide comfort in the knowledge you will be covered in the event of any unforeseen disruptions, losses or claims that might be lurking around the corner.

Connor Campbell Published on 16 November 2021. Last updated on 17 November 2021.
Do I Need Business Insurance?

When running a business, not everything is in your control. Business insurance can help mitigate this fact, giving you the peace of mind that, if something does go wrong, you’ll be covered financially.

So whether you are a big business, a small business, a sole trader or self-employed, chances are you should consider some form of business insurance.

However, it can be difficult to navigate the numerous commercial insurance policies that fall under this umbrella, and to know exactly which ones are the right fit for your business.

That is why we have put together a guide on everything you need to know, from the different types of business insurance, to business insurance costs, and more.

What is business insurance?

There is no ‘one size fits all’ form of business insurance. Rather, the term covers a collection of policies that can be used to try and safeguard your business from the unexpected costs associated with various incidents and outcomes.

These policies range from dealing with everyday human error, to the potential loss of income if your business cannot perform its usual operations due to an unforeseen event, and all the legal costs involved.

Is business insurance mandatory in the UK?

Employers’ liability insurance is the only form of business insurance that is legally required in the UK.

The moment you become an employer, you must take out employers’ liability insurance, from an authorised insurer, with cover of at least £5 million. If you fail to do so, you will be fined up to £2,500 a day until you are properly insured.

However, different sectors and industries have different expectations. The most notable of these is around professional indemnity insurance.

While not a legal requirement, certain chartered bodies and regulators, such as accountancy, engineering and healthcare sectors, require you to take out professional indemnity insurance as standard.

» COMPARE: Employers’ liability insurance

What happens if I don’t have business insurance?

The main risk of failing to secure business insurance is financial. Without business insurance, if something goes wrong, you will have to pay for it completely out of your own pocket.

Smaller businesses are potentially most in danger of suffering without business insurance, as they will likely not have the spare funds to cover any compensation claims or major damages.

Types of business insurance

The specific collection of insurance policies you decide to purchase will depend on which sector your business is in. Below we break down some of the most notable types of business insurance.

Business liability insurance

There are three major policies that fall under the banner of business liability insurance.

As previously mentioned, employers’ liability insurance is the only form of business insurance that is a legal requirement in the UK. It covers compensation costs and legal fees for you as an employer if anything happens to your employees at work, for example an injury or illness.

Public liability insurance, meanwhile, is designed to cover claims made against your business by someone outside of the business. This includes clients and visitors as well as the general public, and would typically be used in the case of personal injury or property damage.

Finally, product liability insurance protects against claims made related to injury or damage arising from products your business has sold. Even if you did not manufacture the items yourself, you can still be held accountable, so it is an important consideration if your business involves selling goods.

» COMPARE: Public liability insurance

Professional indemnity insurance

Instead of injury or damage, like with liability insurance, professional indemnity insurance protects your business if you cause financial loss for your client. This could be through professional advice or instructions, as well as if your business provides designs and specifications.

Depending on your industry, professional indemnity insurance is a must for a number of chartered bodies and regulators. It can therefore be a mandatory requirement for your business to function, without ever being a legal necessity.

Within the rules of these specific institutes and associations, a lack of professional indemnity insurance can result in disciplinary action.

Business interruption insurance

A business interruption insurance policy would be taken out to protect against events that prevent your business carrying out its usual operations, therefore causing you loss of income.

Traditionally this is in relation to property damage caused by fires and floods, or the breakdown of equipment.

However, it can be extended to other events. Most notably, the Financial Conduct Authority (FCA) ruled that many providers that hadn’t paid out Covid-19-related business interruption insurance claims had to do so.

Business car insurance

Technically, business car insurance is a legal requirement, because car insurance is a legal requirement to drive on UK roads.

However, specific business car insurance will only be needed if you use your vehicle for work-related purposes.

You would not need specific business car insurance just to commute to and from a permanent place of work. You would need it, on the other hand, if your business involves driving to multiple places of work, such as meetings or business sites, or if you make deliveries and collections.

Business car insurance comes in three tiers: class 1, class 2 and class 3. Which tier you need will depend on when and how you use your vehicle for work.

Commercial building and contents insurance

Similar to business interruption insurance, commercial building insurance will protect your business premises from damage, usually floods, fires and burst pipes.

Business contents insurance, meanwhile, covers everything inside your premises, such as your fixtures, fittings and stock.

» MORE: Buildings and content insurance mistakes to avoid

How much is business insurance?

Business insurance costs can vary greatly, depending on how much cover you are looking for, and the size of your operation. It could range anywhere from as little as £10 a month to £1000s a year.

When looking to buy business insurance, you can either purchase it directly from the insurer, or go through a business insurance broker. For a fee, the latter will provide you with advice on what forms of insurance your business might need, and can help you access specialist products if required.

You would then usually take out a package of policies grouped together under one premium. A premium is how much you pay the insurer for your insurance, and could come in monthly instalments or as an annual payment.

When choosing your policies, you will decide how much cover you want to purchase. This will inform the cost of your premium.

Other factors that will affect your premium include how many policies you are purchasing, the size of your business, the unique challenges associated with your sector, and how well run you can prove your business to be.

On top of your premium, there are other business insurance costs to consider. For example, your insurance excess is the amount you will pay towards the value of a claim when it is made. The cost of this will vary between insurance types, and will be determined when you take out the policy.

How to compare business insurance

It is wise to carefully compare business insurance offers to make sure you find the right level of coverage at the right cost for your company.

When doing so, you should consider the type of risks associated with your sector, for example how often you engage with the public, whether you use heavy machinery, or if you have large amounts of stock that needs protecting.

This will help you decide how much financial cover you require from each policy. Some sectors may also require or expect you to have minimum coverage in specific policies.

» COMPARE: Business insurance with NerdWallet

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About the author:

Connor is a writer and spokesperson for NerdWallet. Previously at Spreadex, his market commentary has been quoted in the likes of the BBC, The Guardian, Evening Standard, Reuters and The Independent. Read more

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