No one wants to pay for something they may never use, but sometimes business insurance isn’t an optional extra. We explain when business insurance becomes a legal requirement, and when it’s a matter of choice.
Running a business takes a lot of work and cost comes into every decision you make. Can you afford to buy something, and will it boost your takings if you do or hurt them if you don’t?
It’s easy to see why buying insurance might not appeal – especially as most types are not a legal requirement. So how much risk are you taking by not having it?
Business insurance covers you if something goes wrong with your company. This could be anything from your stock being stolen to a customer taking legal action against you. It’s designed to save you from losing out financially by footing the bill in a range of potentially expensive situations so could save you money in the long run.
Here we look at the ins and outs of business insurance to help you decide if it’s right for you and what policy would suit your business best.
Whatever business you operate, from selling brownies through the post to fixing washing machines, it’s worth considering insurance to cover you if something goes wrong.
There are lots of policies on offer, and the right kind for you will depend on your business, its size and how it works. Insurance for a home renovation company, for example, will look very different to a policy for an accountancy firm.
You can buy policies to cover specific situations such as goods in transit or personal accident. There’s also ‘key-person’ insurance, which covers you if a key person to your business isn’t able to work, such as if they are ill or die.
Here are the main business insurance types available, many of which can be bundled together in one policy or bought as standalone insurance.
Public liability insurance covers you if a member of the public is injured or their property is damaged because of an action relating to your business – they slip on a wet floor at your premises and hurt their back, for example.
If they make a claim against you, public liability insurance pays for the cost of paying them compensation.
You’ll be covered if a customer makes a legal claim against you for financial loss to them because of work you have carried out, such as you’re a solicitor and advised them incorrectly.
Professional indemnity insurance will cover the cost of paying them compensation for their loss.
You’ll only need this if you employ members of staff, and it’s mandatory. It protects you against claims made by employees who are injured or become ill through doing their job. Examples include falling from a roof while they’re fixing it or injuring their hand while using defective machinery.
Employers’ liability insurance generally covers the cost of compensating the employee as well as the legal costs involved.
If a product you design, make or supply causes injury to a customer or their property, this insurance will cover you if they decide to make a financial claim against you. Situations it could cover include a ready meal you make causes food poisoning or electronics you supply explode.
The policy covers you for the cost of compensating the customer for any injuries, property damage or unforeseen circumstances they suffer.
Unless you work from home, you will be working from a separate business premises such as an office or shop. If you own the property, buildings insurance will cover you against damage to it, such as from fire, floods or storms.
If you’re renting it from someone else, the owner of the building is responsible for taking out buildings insurance, although the cost may be passed onto you.
For home businesses, check you’re still covered by your home insurance. You may need to increase your cover.
You’ll be covered for the cost of replacing the contents of your business premises, which can include stock, if they’re damaged, destroyed or stolen, such as by a flood, fire or break in.
If you run your business from home, you may already have a contents policy in place. This is unlikely to cover you for items relating specifically to your business, but 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.
If you are unable to operate your business, such as if your office space is flooded or your supplies are damaged, business interruption insurance can provide cover so you don’t lose out financially. It will pay for the loss of income that results to put you into the same position you would have been in if the incident hadn’t happened.
As with most types of insurance it only applies to scenarios you couldn’t foresee.
If your business requires you to have and operate a van, to move your equipment around, for example, or for journeys to customers’ homes, you’ll need to have the right insurance in place. If you use the van for any kind of work purpose you will need business van insurance, or commercial van insurance as it’s also known.
As with insurance that covers vehicles for personal use, you can take out the minimum third-party insurance that’s required, third party fire and theft, which also covers you if something happens to your vehicle, or comprehensive insurance, which covers all of the above and more.
One policy you legally need to have if you run your own business is employers’ liability insurance if you employ any staff.
This is required by law and you could be fined £2,500 a day if you operate without it. You can also be fined £1,000 if you do not display your employers’ liability certificate or refuse to make it available to inspectors when they ask.
The policy must provide cover for at least £5 million and come from an authorised insurer. You can find out more on Gov.uk.
You must also have at least third-party business motor insurance if you own a vehicle, such as a van, for business purposes or your employees drive company vehicles.
You don’t legally need to have most types of business insurance but if something goes wrong it can result in big financial losses.
Life is unpredictable and there’s no way of knowing what will happen next, and while you may have savings set aside to cover damage to your stock, or a batch of customer orders going missing that you need to resend, could you afford to pay a legal claim made against you from a customer?
In some cases these can run into hundreds of thousands of pounds and the legal costs alone could bankrupt a business and stop it from operating.
That’s a risk most business owners are not willing to take, especially given that business insurance is a relatively small cost in comparison.
The cost of business insurance can also be tailored to the level of cover you need. You decide how much cover you want, and how many extras you would like included, so there’s usually always an opportunity to find a cheaper policy.
Comparing insurers is also important, not only to find an affordable price but also to make sure the policy you’re choosing will cover you for every scenario.
Apart from the types of business insurance that are legally required, depending on the nature of your business and whether it’s a small business or a larger one, you may need to have other policies in place.
For example, if you sell food or drink products at a local market, it may request you have insurance in order to sell your items, while some industry bodies state that businesses must have insurance to be able to operate. Solicitors and accountants, for example, usually need professional indemnity insurance.
How much does business insurance cost?
The price you pay will depend on a range of factors, including the type of industry you’re in and the size of your business.
Your premiums are based on the risk to the insurer of you making a claim. So if your business is a copywriting company you operate from home, for example, the risk will be lower than if you operate machinery or often have to visit customers’ homes.
Most policies also offer different levels of cover, which will reflect the price you pay.
How can you make a business insurance claim?
If you need to claim on your business insurance, you should contact your insurer as soon as possible. You’ll usually either be able to phone its claims line or let it know you want to make a claim online. Make sure you have your details ready, such as your policy number and information about the incident that has resulted in the claim.
Read more about how to claim on your business insurance.
Yes, there are a number of types of insurance you should consider as a sole trader depending on what you do.
If you don’t have staff, you won’t need employers’ liability insurance but 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 may also want to take out professional indemnity insurance – you may even be required to have it for your profession.
Also make sure you have business van insurance if you have a van you use for work.
Yes, there are a number of types of business insurance that could be particularly worth having if you run an online business. If you hold stock, you’ll need business contents insurance in case it’s damaged or stolen.
You should also consider product liability insurance to protect you if the products you make or supply cause injury or damage to other people or their property.
It depends. You may not need business buildings and contents insurance if your existing home insurance policies still cover you when you work from home but the nature of your work and whether customers visit your premises will be factors.
You should let your insurer know that you’re working from home and check whether you’re still covered or whether you need to pay extra or take out specific business insurance.
Yes, by law you need employers’ liability insurance if you have employees. This protects you if they are injured, become ill or die in the course or doing their job as it covers the cost of any compensation you need to pay them and related legal costs. If you don’t have it, you can be fined £2,500 per day.