Connor Campbell
Holly Bennett
Businesses of all sizes and professions take out business insurance to get financial protection if things go wrong.
Some types of cover are needed by law if they apply to you, but others can be based on risks you want to protect against or those required by your sector or trade. On this page, we look at what to consider if you’re looking to protect your business.
Why do I need business insurance?
There are a few reasons why businesses decide they need insurance, including:
- 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 business insurance?
Is business insurance a legal requirement?
Employers’ liability insurance is the only business insurance you need by law, and then only if you have employees. (In Northern Ireland, it’s called employers’ liability compulsory insurance.)
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.
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.
» MORE: Is your business underinsured?
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 have it, you 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. You could also face a fine for each day you don’t have cover.
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.
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 (if you are a sole trader) or your business will have to foot the bill for any legal or compensation claims 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 the cost of any compensation claims or major damage.
» MORE: What insurance do I need for a small business?
What insurance do I need for my business?
There is no one-size-fits-all option. 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 against.
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. If you’re not sure where to start, you may want to consider using a business insurance broker, though this may involve a fee.
Main 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.
» MORE: What is public liability insurance?
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 may be mandatory for your business to win contracts and be a part of key professional associations.
» MORE: What is product liability insurance?
Other types of business insurance
Beyond liability cover, you could 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 before you buy. Also check how long you would need to 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 insurance 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.
» MORE: What working from home insurance do you need?
Cyber insurance
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 may want to consider it to help you recover financially afterwards.
How much business insurance do I need?
The level of business insurance you need, and the maximum amounts you are covered for, will depend on the financial risks your business faces. This can range from protection for legal action by an injured customer to theft of your stock.
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, and if you are a limited company, you will need this in place even if you employ any family members. You’ll also need vehicle insurance if you use a car or other vehicle for work, with third party cover the minimum level allowed.
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.
» MORE: How much is business insurance?
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