As anyone who runs their own firm knows, before opening the doors to customers and clients you need to ask yourself: what business insurance do I need?
Business insurance is about protecting you and others, as well as your and their property. Here we explain why you need to have the right small business insurance in place before you start trading.
What is business insurance?
Whether you’re a sole trader, a family-run concern or just starting off with an employee or 2, you need some protection against unfortunate and unsightly incidents.
This is where business insurance comes in. There’s a host of business insurance policies designed to guard you from the fallout of employer, customer, workplace or supplier disputes. It’s a shield, protecting you from serious financial or personal damage, which could comprise injuries to your staff, yourself or your business’s reputation.
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What types of small business insurance are there?
There are a lot of different types of insurance for small businesses, ranging from Public liability and Professional indemnity to Credit risk and Cyber insurance. But, before turning to these insurances, let’s consider the only one that’s a legal requirement in many cases.
Employers’ Liability insurance
Employers’ Liability cover is there to pay compensation if your employees are injured or fall sick as a direct result of their work for you. You invariably need this type of insurance if you employ anyone other than a family member. It’s also a must if you have a member of staff who’s normally based abroad but spends more than 14 days continuously in Great Britain.
It’s tempting to think that by injury the law means a serious breach of health and safety regulations. Someone falling down a lift shaft on a building site that wasn’t cordoned off may spring to mind. But a legal case could just as easily follow an employee tripping over some loose matting in the staff café.
If Employer’s Liability cover is a form of insurance you need, ensure you follow the necessary legal requirements
Your policy must come with at least £5 million of cover to ensure serious claims would be covered. It’s worth noting many insurers offer £10 million of cover as standard, according to the Health and Safety Executive (HSE).
You must keep up payments for 40 years, to cover health issues that emerge years later.
Your policy must be provided by insurer who’s authorised by the Financial Conduct Authority (FCA), and appears on the FCA Register.
Don’t risk a fine
Incidentally, failing to display your Employers’ Liability insurance certificate somewhere all staff can see it could result in a £1,000 fine.
As for forgetting to get adequate cover, this could lead to a £2,500 fine from the HSE for every day you’ve operated without adequate cover.
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What insurance do I need as a small business?
Aside from Employer Liability insurance, the types of small business insurance for UK firms that you might consider depends on several factors. For example, the nature of your work, who you employ and may come into contact with.
Here are the main ones:
Professional indemnity insurance
Professional indemnity insurance is one to consider if your company gives professional advice to clients. It’s intended to pay for claims against you for poor advice or inadequate work. The range of potential businesses that could benefit from PI Insurance – as it’s commonly known – includes chartered surveyors, fitness instructors and solicitors.
PI insurance typically provides up to £5 million of cover to tackle cases relating to:
Product or service disputes
If you think you need PI Insurance, you should keep it in place for 6 years after your final contract. This is to ensure legal disputes relating to work that rear up after you’ve sold or folded the business are covered.
Public liability insurance
Public liability insurance is almost a parallel of Employers’ Liability insurance, as it protects against workplace accidents that affect the public, rather than staff. It focuses on 2 types of cover:
Protection against a claim for negligence that led to someone being injured
Protection against a claim for negligence that led to someone’s property being damaged
It’s important to compare several Public liability policies, as they don’t all come with the same levels of cover. Some offer protection against lawsuits for personal injury up to a limit (or even death), legal fees and compensation claims. Others don’t.
Public liability insurance is probably worth considering if your business has direct contact with the public. It could be worthwhile having if you’re a tradesperson, event host or your business is located in public areas where walk-through traffic is a possibility.
Business contents insurance
Also known as Stock insurance, this type of cover is used by companies that store valuable items on site, without which they’d struggle to operate. It’s intended to compensate if essential items are damaged, stolen or destroyed. These could include computers, machinery, tools and stock.
It’s worth noting that products and equipment used specifically for business purposes aren’t usually covered by home contents insurance.
Business equipment insurance
Business Equipment insurance, and Tool insurance for that matter, cover very specific items without which you’d be unable to fulfil work obligations. It ensures that workplace equipment is replaced or repaired swiftly.
Items that could be covered include photocopiers and heavy-duty machinery. But if you use a motorbike, car or van for business, it might be cheaper to have this covered on your standard motor insurance policy.
Business interruption insurance
Many small businesses run out of a single unit or home, meaning work can grind to a halt if there’s a fire, flood or other devastating occurrence. This is where Business interruption insurance can step in. It’s designed to cover costs incurred during what could be a long down-time, including loss of income and damage to property.
Product liability insurance
Under the Sale of Goods Act 1979 all goods sold must be fit for use and as described. If they’re not you could be sued. Product Liability insurance exists to provide a buffer to any subsequent legal cases.
If you run a business producing or even just selling items that might not turn out as the customer expects (a problem if they’re buying online) this insurance could be worth considering. Likewise, if the product you sell could potentially contain a dangerous rogue element such as peanut residue, this cover could save you a small fortune.
Key person insurance
Some firms might employ a certain person whose skill set means they’re indispensable. They might be the only conveyancer in your small law firm, or the only person who understands your accounts. This cover ensures that if they are incapacitated, your business gets compensation so it doesn’t go under.
Credit risk insurance
Even with business contracts in place things can go wrong. If you win and fulfil a large contract, your business could be hampered or even endangered should your client fail to pay up.
With Credit Risk insurance, the losses you might incur should be covered. It’s possible to buy this type of insurance to protect your business on an annual basis or for a specific job.
Given more and more businesses rely on computer technology, the need to protect against a cyber-attack or a virus is now essential for many firms.
Many companies buy this form of cover so they can get back up and running following a data breach that might otherwise leave them floundering. Some policies even provide customer and PR support so your business reputation remains intact.
How to find other types of small business insurance
There are other types of small business insurance, covering niche businesses and projects. If you’re not sure one of the types of cover referenced here offers enough protection, it could be worth speaking to a specialist.
The British Insurance Brokers’ Association is a good first port of call if you run a small business that may be in need of additional cover.
How can I get cheap small business insurance?
Business insurance can be expensive, but it’s a necessity, and so needs to be factored into your annual budget. In many cases, including Employer Liability insurance and Professional indemnity insurance – 2 of the most common policies – monthly costs can start from around £5.
Even if you must keep a small business policy ticking over for many years after retiring or moving on to another project, this is manageable. That said, it pays to regularly review what you’re getting for your money and to shop around for the best policies for the least outlay.