What is business insurance and why is it so important?

Business insurance can protect your company from financial losses if something goes wrong. Different types of business insurance cover different risks, such as legal costs and damaged property, so it’s important to consider which ones you need. 

Without the right protection in place, you or your business might have to cover these costs out of your own pocket. This could prove very expensive and, in some cases, even wipe out your business or personal finances.    

What does business insurance cover?

Business insurance (also called company insurance) covers a range of different risks faced by your business – from everyday hazards to those resulting in substantial compensation claims.

Exactly what’s covered depends on the type of business insurance policy you take out. Some of the most common policy types and what they cover include:

• Public liability insurance: This covers you if a member of the public, client or customer sues you due to an injury or property damage caused by your business activities. For example, if a visitor falls and breaks their leg in your workplace.

• Employers’ liability insurance: Protects you against the cost of compensation claims if a member of staff becomes ill or injures themselves when working for you.

• Professional indemnity insurance: Protects you if a client makes a claim against you for financial loss caused by using your services or following your advice.

• Goods in transit insurance: This covers you for goods stolen or damaged during transport.

• Business interruption insurance: This protects you from income loss if your business has to stop trading due to an unexpected event, such as fire damage to your premises or equipment failure.

• Self-employed insurance: Protects you from the costs associated with legal action, data breaches or personal injury if you work for yourself. 

• Product liability insurance: Covers any damage or injury caused by the products you sell.

• Cyber insurance: Covers you for losses relating to damage to IT systems and networks. 

• Property insurance: Protects your business premises against damage caused by flooding, fire, escape of water, theft or vandalism.

Read more: What insurance do I need? 

Do you need business insurance? 

If you employ one or more employees, you must have employers’ liability insurance by law. It’s then up to you to decide what other types of business insurance you might require.

Just keep in mind that you might need public liability insurance to belong to certain trade associations.

Similarly, some regulators and industry bodies require you to have professional indemnity insurance – for example, if you’re a solicitor, accountant or financial adviser.

Some clients might also insist you have public liability insurance and professional indemnity insurance before doing business with you. 

But even if that’s not the case, you should give business insurance serious thought to ensure your business can continue to operate if it encounters problems.

Taking out cover protects your business from substantial costs arising from professional mistakes, accidents, damage and compensation claims.  

Read more: Differences between public and employers’ liability insurance 

How much cover do you need?

The cover you need depends on the nature and size of your business - no matter whether you have a team or are self-employed. Think about the sort of risks your business faces to establish the type of insurance you require. Next, consider how big those risks are to determine a suitable level of cover. 

Some customers and professional bodies might also ask that you have a certain level of cover in place before working with you.

If you need employers’ liability insurance, legally you must get at least £5 million worth of cover, although UK insurers usually offer £10 million as standard. 

It’s important to choose a level of cover that’s high enough to protect your business and meets all the requirements. But you also want to avoid over-insuring your business as the higher the level of cover, the more you pay in premiums. 

If you’re not sure how much cover you need, it’s best to speak to a broker or your preferred insurer. 

Read more: Public liability insurance for small businesses explained

When should you get business insurance?

You should apply for business insurance for new company as soon as possible. You can even do this before you start trading to ensure you’re protected from the very start.

However, if you buy cover before you have your trade licence in place, your insurance could become invalid if you still don’t have the necessary licences once you start trading.

If you’re employing staff, you need to get employers’ liability insurance immediately. 

How much does business insurance cost?

The cost of business insurance depends on various factors. These include the type of business you run, the type of insurance you need, and the level of cover you require. The riskier your business and the higher the level of cover, the more it costs.

Other factors that affect premiums include your claims history and the level of excess (the amount you pay towards the cost of a claim).

Choosing a higher voluntary excess can reduce premiums, but you need to make sure you can afford to pay the amount you choose on top of the compulsory excess in the case of a claim. 

The best way to ensure you get the right level of cover at the best price is to shop around and compare a range of quotes.