What type of business insurance do I need?
With various types of business insurance available, it's essential to understand which your business requires and which are optional.
Business insurance exists to cover your business if something goes wrong, such as someone stealing your stock or a customer taking legal action against you. Having the correct type of cover in place could provide financial protection and save you from footing the bill yourself.
Business insurance is a way to protect your company against financial risk if things go wrong.
Types of business insurance
A wide range of business insurance types are available, each tailored to safeguard against specific losses. When deciding which kind of business insurance you need, think about the nature and the size of your business, as well as the risks you might face.
Below are some of the main types of commercial and business insurance.
Buiness insurance types
Public liability insurance
Protects against injury to third parties or damage to their property
Public liability insurance covers you against claims for loss, damage or injury from members of the public, customers or clients. It can cover legal costs and compensation. It’s a legal requirement if you run a horse-riding business.
Professional indemnity insurance
Protects you if someone sues you for negligent work
Professional indemnity insurance covers claims against you for losses caused by poor advice, loss of intellectual property or libel. Surveyors, journalists and solicitors are among those who should consider this cover; alongside other startups.
Employers’ liability insurance
Protects you in case of work-related employee injury or illness claims
Employers' liability insurance is a legal requirement if you employ at least one member of staff. It protects you against claims made by employees who suffer injury, illness or loss because of their work.
Employers’ liability insurance typically covers employee compensation and legal costs.
Read more:
Product liability insurance
Protects you if your product injures someone
Product liability insurance covers you if a product you design, make or supply causes injury to a customer or their property. For instance, a cake you bake causes food poisoning, or you supply electronics that later malfunction and explode.
A product liability policy covers the cost of compensating the customer for any injuries, property damage or unforeseen circumstances they suffer.
Business buildings insurance
Protects you in case of property damage
Business buildings insurance covers you against fire, flood or other damage to your business premises.
If you work from home, check your home insurance covers you. You may need to increase your cover if not.
If you’re a landlord, you need business buildings insurance if you rent out commercial property (such as shops and offices). If you rent out residential properties, you need landlord insurance.
Business contents insurance
Covers belongings loss or damage
Business contents insurance covers the cost of replacing your business premises’s contents, including stock damaged or destroyed by fire or flood, or stolen items.
You may already have a contents policy if you run your business from home, but it’s unlikely to cover items that relate specifically to your business. That said, you may be able to add extra cover instead of buying a completely new policy. Speak to your insurer to see what it offers, and always compare its price against other policies on the market.
Business interruption insurance
Protects you if you can’t trade
If you can’t trade due to an unexpected event, such as fire damage, business interruption insurance provides cover so you don’t lose out financially.
Goods in transit insurance
Goods in transit insurance protects you against claims arising from loss, damage or theft of client or customer property during transport.
Cyber insurance
Protects you in case of a data breach or cyberattack
Firms that conduct business online or keep employees and client details digitally should consider cyber insurance to protect against data breaches, cyberattacks or online fraud.
Key person insurance
Compensation if you lose valuable employees
Key person insurance protects you if essential personnel are too ill to work or die. It compensates you for that loss.
Personal accident insurance
Covers individuals in case of serious injury
Certain small businesses, such as scaffolders and fishermen, work in potentially dangerous environments. This insurance can cover medical costs and loss of income if they suffer serious injury.
Business motor insurance
Protects your company vehicles
If you own a van for your business, you must have third-party insurance in case you’re in an accident. This is the minimum level of cover you can have, but you can upgrade your protection if you wish. Read more about van insurance.
Do you have to have business insurance by law?
You must legally have employers’ liability insurance if you employ staff. Your policy must cover you for at least £5 million. Fines of £2,500 a day apply if you operate without it.
If you have any company vehicles, you must also have motor insurance.
Apart from that, it’s up to you to decide what cover your business needs.
What business insurance do I need?
The type of insurance you need depends on the type of business you run, even whether you are self-employed. Think about the potential risks you might need to cover by asking yourself whether you (or your staff):
Come into contact with the public, customers or clients through work
Offer advice
Sell products or services to third parties
Conduct business or store information about your staff and customers online
Have potential clients who won’t work with you without a specific policy
Have people working for you
Have expensive, specialised equipment or tools
If the answer to any of the above is yes, you need to apply for business insurance to cover these risks. For example, if your business regularly deals with members of the public, you should consider public liability insurance.
Some industry bodies also state that businesses must have insurance to operate. Solicitors and accountants, for example, usually need professional indemnity insurance.
What are the risks of not having business insurance?
If you don’t have business insurance and something goes wrong, you might need to cover the necessary costs yourself. Although you might have savings set aside to cover damage to your stock, legal claims can run into hundreds of thousands of pounds, potentially bankrupting your business.
That’s a risk most business owners are not willing to take, especially given that business insurance is a relatively small cost in comparison.
How to get insurance for a small business
Once you know which type of business insurance you need, it’s worth using a comparison site to help you find the right level of cover at the best price.
You can buy policies individually or as a bundle. For example, you could potentially purchase business buildings, contents and interruption cover in one package. It’s important to check to ensure you’re getting the best value.
FAQs
What is business insurance?
Business insurance protects your company from financial losses if something goes wrong. It’s an umbrella term for different types of cover that can protect your business from various risks.
How much does business insurance cost?
The price you pay for business insurance depends on several factors, such as the type of industry you’re in and the size of your business. The type and level of cover you choose also affect premiums.
Read more: How much does business insurance cost?
Do I need business insurance as a sole trader?
If you’re a sole trader, you only have to take out business insurance if you employ staff or own a company vehicle. In these instances, you need employers’ liability insurance and motor insurance.
However, certain other types of business insurance could also prove useful. For example, it could be worth having public liability insurance in case your work causes injury to members of the public or you damage their property. You might also want to take out professional indemnity insurance – you may even need it for your profession.
Do I need business insurance if I work from home?
That depends on the type of business you run. Employers’ liability insurance is a legal requirement if you employ any staff. You also need motor insurance if you have a company vehicle.
You might also want to consider professional indemnity insurance if you advise clients, and public liability insurance if customers or clients visit your property.
Find out more about working-from-home insurance.
Business insurance is a way to protect your company against financial risk if things go wrong.
About Rachel Wait
Rachel has spent the majority of her career writing about personal finance for leading price comparison sites and the national press, including for the Mail on Sunday, The Observer, The Spectator, the Evening Standard, Forbes UK and The Sun.