When you’re starting a business, it can be hard to know what insurance you need.
To help, Simply Business have put together a quick and easy guide to the main types of business insurance that are available. This article will help you get to grips with the options and make sure your business is covered if anything goes wrong.
Public Liability Insurance
Public liability insurance covers legal costs and compensation payments claimed by a third party, such as a member of the public, for an injury they suffer or for damage to their property. This is important if your business interacts with clients from outside the business, on a regular basis.
- It could cover compensation claims if you spill coffee on a client’s computer, or if a customer slips on your wet shop floor.
- It could also apply if an accident occurs when the professional is working in a client’s home; for example, if a member of the public was injured by a tool or falling brick during the building of a conservatory at their home, or during the visit of a mobile hairdresser, a claim could occur for compensation.
- As well as people, it can cover many other things: business stock, temporary buildings, injury to working partners, tools, and hired in plant cover.
In the UK it’s not a legal requirement to have public liability insurance. However, some contracts – especially for work in the public sector – will demand a minimum level of public liability cover. Typically cover might include up to £1m public liability cover, customised legal documents for each case and access to helplines, in the event of a claim.
Professional Indemnity Insurance
This protects you if a client sues you for a mistake that causes them to lose money. It’s therefore important for businesses that offer advice, provide a professional service, or handle client data.
A good professional indemnity policy will cover legal costs and compensation payments, up to the limit of the policy. It should cover issues such as:
- An occasion where you copied the wrong person into an email discussing sensitive client matters, your client could sue you for breaching confidentiality.
- Professional negligence; for example, if your architecture company drew up faulty plans and a building later collapsed as a result, your client could seek compensation.
- Where any advice that you gave a client led to significant financial loss for them.
- Defamation, such as slander and libel.
- Loss of goods, for which you are responsible.
Depending on your type of business, your regulator or professional body may require you to have this cover. This is the case for solicitors, accountants, financial advisers, architects, and some healthcare professionals. Without this insurance you may have to pay thousands of pounds in compensation, alongside the time spent defending allegations.
Employers’ Liability Insurance
If you have one or more employees, you’re legally required to have an employers’ liability policy. This insurance covers you for any claims made by your staff for injury or illness that they think has been caused by their work or workplace.
- This applies to full-time, short-term or part-time staff, casual workers and contractors.
- If you pay an employee on a per-hour basis, supply equipment and materials, and/or deduct NI contributions and income tax, you must have employer’s liability insurance.
- It could cover you for claims if an employee tripped on loose office carpet and broke their leg, for example
By law (Employers’ Liability Act), anyone with staff has to have at least £5 million of cover, or face a fine of up to £2,500 each day. However, there are some exceptions to the law; for example, if you only employ close family members you’re not legally obliged to have cover.
When taking this cover, it’s important to inform the company of the number of staff you have, broken down into clerical and manual roles (if applicable). Usually, this insurance can be slotted in alongside your public liability insurance and taken as part of a single business policy.
Unlike some of the other insurances on this page, cyber insurance is not necessarily mandatory, although definitely advised. It’s designed to protect a business in the event of a cyber attack, which could lead to a data breach and the loss of information. Perhaps worse still, in certain cases hackers have tried to extract a ransom from victims after locking accounts and making websites and computers unusable.
Insurance will not protect against hacking, but it can:
- Reimburse the policyholder for any damage to websites and hardware.
- Pay a ransom and employ a risk consultancy firm to manage the situation in the event of an extortion.
- Provide the services of a PR firm to manage any reputational damage.
- Pay breach costs, including forensic investigations.
- Pay costs and claims made against you in the event of customer data being hacked.
The cost of insurance will depend somewhat on the size of the company, the level of protection it employs already, and the nature of the data you use.
If you are using vehicles during and as part of work, as opposed to commuting, you should have specific vehicle insurance for business. This might include delivery work, driving vehicles on or off specific sites, and carrying passengers, but may also include other less-likely jobs – such as travelling to a training course, attending company away days, and even going to the bank.
Typically, when taking out vehicle insurance, you’ll be asked how you’re intending to use a vehicle, and the options will comprise social only, social including commuting, business use, and commercial travelling. With any of these options third party insurance should be taken as a minimum, but comprehensive insurance will cover the named driver’s vehicle as well. Your business insurance might cover cars, vans, lorries or motorbikes; as a sole trader or as a company; and for different types of usage such as foreign journeys and working as a courier. Other, more niche insurances also exist depending on your circumstances. If you’re carrying passengers you’ll probably need taxi insurance.
If you’re unsure which category you fit into then it’s worth contacting the insurer directly to make sure you are fully covered. Business insurance will almost certainly be more expensive than car insurance for social use, but is required if you are to be properly insured properly insured.
Buildings and Contents Insurance
You only need buildings insurance only applies if you actually own your premises, and may be the correct policy for SMEs, small shops, individual offices, pubs, and other buildings. If you have an office based at home, this can also be covered. You should cover the building for the amount it would take to completely rebuild it, not its market value.
Buildings insurance usually covers the physical bricks and mortar from fires, floods, storm damage, subsidence, theft, vandalism, and other incidents that could cause damage. It does not cover contents – items that could be removed from the building – and you should check whether this includes fixtures and fittings or not.
Contents insurance covers actual physical losses of items against loss damage and theft.
This should include your fixtures and fittings that are part of the company, but might also more transient items such as trade stock – although this might sometimes be offered as a separate policy (see below).
Some insurance companies also provide separate electronic equipment insurance policies for laptops, registers, mobile phones, printers, and other pieces of technology. Contents insurance, stock insurance, and business equipment cover might all be contained in one policy.
Other Types of Cover
Of course, every business has slightly different insurance needs, and it’s important that you get a policy that’s tailored to you. There are plenty of other business insurance covers that you could consider adding to your policy:
- Product liability insurance: Protection against claims for injury caused by a product that you designed/engineered and sold.
- Stock cover: This covers stock in the event that it is stolen or damaged, and will pay for replacements
- High risk insurance: This provides cover for occupations that are potentially more hazardous, such as window cleaning, working in hazardous conditions
- Laptop insurance: Insurance for laptops in the event of theft/damage/destruction
- Turnover protection: This can insure a company in the event of a drop in income
The main advice, for all of the different types of insurance, is not to auto-renew your policy. Instead, shop around and look for good deals, make sure you read the small print and know exactly what is and is not covered, and try to keep your claims down where possible to get better deals in the future.