KEY TAKEAWAYS
- This policy helps cover the cost of hiring a solicitor if your business is involved in legal proceedings.
- Legal expenses insurance can also cover compensation costs and legal defence if a case against you proceeds to court.
- Your business could be covered regardless of whether you started the legal action or not.
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While you might not like to think about it, your business faces all sorts of risks, which is why it’s advisable to protect your livelihood with business insurance.
Everyone knows about the dangers of fires, floods and theft, and the impact they could have on your business. But have you thought about how a legal challenge – regardless of whether you initiated it or not – could affect your business?
From problems with employees to contract disputes with suppliers, there are plenty of reasons why your business could end up fighting a legal battle – even if you haven’t done anything wrong.
Thankfully, legal expenses insurance is there to protect your business. Read on to learn about this small business insurance policy and how it could help you sleep a little more soundly at night.
» MORE: Do I need business insurance?
What is legal expenses insurance?
Legal expenses insurance – also known as legal protection insurance – is a policy designed to protect small businesses from the financial costs of legal action, covering the various fees and costs associated with legal battles.
Perhaps you have a customer who refuses to pay, and you’re forced into debt collection proceedings. Or say you find yourself in an employment dispute, resulting in a costly court battle.
With legal expenses insurance, your insurer could provide you with specialist legal advice as well as paying to cover your legal fees, although they may only get involved if there is a reasonable chance that your legal action will be successful.
For some providers, the policy is recommended as part of a broader insurance package, while for others it is an optional add on.
Legal expenses insurance for businesses
You can get personal legal expenses insurance as well as business legal expenses insurance. The difference, as the name suggests, is who or what is protected.
Business legal expenses insurance only covers your business. This means you shouldn’t expect your insurer to pay out for lawsuits in your private life – just those relating to your business.
But if you are a sole trader (for example, if you’re self-employed or have a side hustle but haven’t registered your business as a limited company) the lines can get blurry.
Legally speaking, sole traders have no separation from their business. This means they are personally liable if things go wrong, with fewer protections than the directors of limited companies. For this reason, if you’re a sole trader, you should take extra care to check what is and isn’t covered before taking out business insurance.
» MORE: Compare Business Insurance
What does legal expenses insurance cover?
If your business gets entangled in a legal dispute, legal expenses insurance could kick in to help with the following costs:
- solicitor or barrister fees
- compensation costs if someone else takes you to court
- expert witness expenses
- attendance expenses
- accountant fees
- appeal and defence costs
As well as financial assistance, your insurer may also be able to provide specialist legal guidance and advice to help you navigate the lawsuit.
Your insurer could cover a range of legal scenarios, including disagreements with suppliers, employee disputes, damage to business property, non-payment proceedings and tax compliance proceedings.
Generally speaking, these protections are there for your business regardless of whether you initiated the dispute or not.
What does legal expenses insurance not cover?
Bear in mind that, as with all insurance policies, your insurer will have details of exclusions that won’t be covered.
In addition to cases you’re deemed unlikely to win, you may not be covered for fines or penalties imposed by a court, claims where you haven’t followed due process and claims made without the prior consent of your insurer – among other things.
In all cases, make sure you read and understand all the small print in your insurance contract, and don’t take out a policy unless you’re crystal clear on what is and isn’t covered.
How much is legal expenses insurance?
The cost of legal expenses insurance is likely to depend on the specifics of your business.
The price you pay could be affected by the size of your business, your claims history, the nature of the work you do, and the level of risk associated with your industry.
Basic cover for some legal expenses insurance policies can start from less than £10 per month.
Just know that your insurer may not offer legal expenses insurance as a standalone policy. Instead, it might come packaged with other business insurance policies as an optional add on.
» MORE: Types of Business Insurance
Who needs legal expenses insurance?
Whether you’re a freelancer, side-hustler, or limited company owner, you want to be able to focus on the important things – like growing your business, keeping customers happy, and turning a decent profit.
That’s the whole point of small business insurance: by getting the right package of insurance policies in place, you can save yourself time, stress and money when things go wrong. Legal expenses insurance is no different.
Your business is vulnerable to legal action from the moment you set it up. If you’re a sole trader, you’re at risk as soon as you become self-employed.
For that reason, you can take out legal expenses insurance from the day you start trading.
Generally speaking, if you would struggle to afford the cost of your own defence, then legal expenses insurance could be a good idea.
It could be particularly useful if your business is at risk of non-payment, if you employ anyone, or if your business premises and property are vulnerable to trespass or damage. In all these cases, if something goes wrong, your legal costs could be covered, allowing you to invest your time and money where it really matters: in your business.
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