Kristina Fox
Whether you are embarking on a business venture for the first time or or you’re a seasoned small business pro, you may be thinking about taking out business insurance. Here, we give you the lowdown on what business insurance is, what it can cover, and explore whether your business needs to take out a policy.
What is business insurance?
Business insurance is a general term that describes a range of different policies relevant to business owners that you choose according to your business and its insurance needs. It isn’t a one-size-fits-all policy that you buy ready made and off the shelf.
Business insurance packages are generally tailored to suit your circumstances, depending on the policies you want to include and the cover limits you need.
» MORE: The cost of business insurance
What does business insurance cover?
Business insurance can cover you, your employees, your clients, or members of the public who interact with you or your workspace in some way, as well as offering many other ways to protect you.
A business insurance package can include one or more of the following:
- Public liability insurance:This can cover claims made by members of the public if they get injured, or die, or their property is lost or damaged because of your work.
- Product liability insurance:If a product you have sold (whether you manufactured it or not) injures someone or makes someone ill, this policy can cover related compensation claims. This includes products that you give away for free.
- Professional indemnity insurance:If a client claims that you have been negligent with your advice or actions leading to them losing money or suffering reputational damage, they may be owed compensation and this policy can pay out if necessary.
- Employers’ liability insurance: This is typically a legal requirement if you employ anyone, as it covers your employees if they get injured or fall ill because of the work they do for your business. However, if you only employ close members of your family or only someone who is based abroad then you may not need this policy.
- Personal accident cover: If you can’t work due to an injury, this can pay you a weekly amount or a lump sum to cover some of your lost income. It can also cover death after a serious accident, in which case your beneficiaries could receive a lump sum as compensation.
- Business contents and stock insurance: If your contents and stock are damaged due to an event such as a fire or flood, or are stolen from a secure location, this could pay out for replacements.
- Commercial property insurance: If an unforeseen event such as a flood or fire damages your business premises, this cover could pay out for repairs.
- Tools insurance: If your tools are damaged or stolen from a secure location, tools cover could include the cost of repair or replacement.
- Business interruption insurance: If an unexpected event forces you to stop trading for an extended period of time, this could compensate you for any lost profits and extra costs incurred to run your business during this time.
- Cyber insurance: If you’re subject to a cyber attack and your IT systems are damaged, or customer details are compromised, this policy could pay for replacement equipment and compensation for those affected by a data breach.
- Tradesman insurance: This protects trades from the risks while on the job. These policies go beyond injury and illness, including property damage, theft and claims of professional negligence.
» MORE: Do you need an insurance broker?
You may also need to think about business car insurance or van insurance if you use a vehicle for business purposes. For example, if you run a cake-making business and deliver to events or to customers’ homes. It’s likely that this will need to be a separate policy taken out with a car insurance provider as opposed to business insurance.
» MORE: Business car insurance explained
Why might I need business insurance?
Legally, whether you need business insurance depends on whether you employ anyone or not. The only legal requirement for business insurance in the UK is employers’ liability insurance.
Your employers’ liability policy needs to have at least £5 million of cover and be issued by an insurer that is authorised by the Financial Conduct Authority (FCA). If you don’t get employers’ liability, you can be fined £2,500 for each day you don’t have it. The only exceptions are if you employ a member of your immediate family or someone who isn’t working in the UK.
» MORE: What is employers’ liability insurance?
That said, even if you don’t legally need to take out business insurance, it may still be worth considering. There are many risks to think about when you run a business. You should consider how much you would be able to afford to pay out if something unexpected happened.
For example, imagine if a member of the public injured themselves at your premises and made a costly compensation claim against you. Public liability insurance could cover this, but without an insurance policy in place you could be liable to pay out hefty amounts of compensation.
Similarly, think about what would happen if all your tools were stolen and you had to replace them out of your own pocket. That could have a significant impact on your business finances, especially if you didn’t have an emergency fund to cover unexpected costs like these. But tool insurance could cover the cost of replacements.
» MORE: Do I need business insurance?
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