Small Business Insurance: How to Pick the Right Policies
From pubs and restaurants to architects and consultancy firms, there are numerous types of small businesses. And with them comes an array of small business insurance options, designed to help with legal fees and compensations costs if something goes wrong. Find out more in our guide below.
Business insurance can be even more important for small businesses than it can be for larger firms.
This is because while those bigger companies may have the money in reserve to cover significant losses or claims without insurance, small businesses might not have that kind of cash to pay out if something goes wrong.
Small business insurance could give you peace of mind that, come what may, you will be financially protected.
However, just as there isn’t one definition of a small business, there is no specific product called ‘small business insurance’. Instead, there is a vast array of individual policies that sit under that umbrella. After all, a restaurant or beauty salon has different insurance needs to a consultancy firm or construction company.
Read on, then, to find out the various types of small business insurance available, how they might apply to your business, and how much insurance cover for your business will cost.
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Liability insurance for small businesses explained
You should carefully evaluate the risks, which are common in your industry, and select the sector-specific policies that will provide you the best level of coverage.
However, there are some more general small business insurance policies, which broadly apply to a range of different sectors. These include:
Small business employers’ liability insurance
This is arguably more important than any other form of small business insurance in the UK. This is because it is legally required the moment you start employing people. It may not be the case if you run a business that only employs members of your family, or you employ someone who is based abroad.
The UK government dictates that you must have a policy from an authorised insurer that covers at least £5 million. If you fail to secure employers’ liability insurance, you can be fined up to £2,500 a day.
If your employee makes a claim against your business, perhaps due to an illness or injury they suffered while doing their job, this form of insurance will cover the legal and compensation costs.
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Small business public liability insurance
If employers’ liability insurance deals with internal claims, then public liability insurance for small businesses would cover claims made by clients, visitors and members of the general public.
Normally this form of insurance covers personal injury, death and property loss or damage. It is worth looking into public liability insurance if your small business carries out work in public spaces or people’s homes, or if you have frequent visitors to your business. This means it can cover everything from pubs and salons to builders and decorators.
For example, if you run a decorating company and you accidentally damage your client’s property, public liability insurance would pay for the costs.
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Small business product liability insurance
You can be held legally responsible for any damage or injury caused by goods you sell or give away for free, even if you were not the original manufacturer.
That is where product liability insurance comes in. As with public liability insurance, a product liability policy can cover a range of different industries.
So if your small business designs, manufactures and supplies goods of any kind, from food and toys to cleaning products, it is worth taking out product liability insurance.
Small business professional indemnity insurance
While not legally required, some institutions, regulatory bodies and even clients will insist your small business has professional indemnity insurance.
This is especially common if you work in industries that provide advice or services. This includes professions, such as accountants, surveyors, engineers, lawyers, interior designers, and consultants of any kind.
Professional indemnity insurance is designed for situations where your advice or services have caused a financial loss for your client or customer.
For example, if you provide flawed blueprints for a building that, once constructed, cost money to rectify, or accidentally use copyrighted images when designing a website, which later gets your client in trouble, professional indemnity insurance can cover legal costs and compensation.
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Other types of small business insurance
There are a number of other forms of business insurance you may want to look into, depending on the sector you work in.
For example, you may need business vehicle insurance, also known as commercial motor insurance, if your company’s work involves driving.
Or you could take out commercial building and contents insurance to protect both your premises and the fixtures and fittings inside.
How much is small business insurance?
Ranging between tens to thousands of pounds a year, the cost of small business insurance depends on a few different factors. These include, but are not limited to:
- the number of policies you choose to buy
- the level of coverage you want from each policy
- the size of your business
- the risks associated with your business sector
- your previous business insurance claims history
- the size of the excess you choose
Due to the number of variables that can affect your premium, it is important to shop around for small business insurance to make sure you find the best deal for your situation.
If you need further assistance, or if you work in a niche sector, you may want to consider using a business insurance broker. They provide guidance on which forms of insurance your small business may need, and can help you find specialist insurance policies related to your industry.
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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