What insurance do I need for my business?

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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.
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You need to think about more than just the space needed to operate from when you start working for yourself from home

Running a small business takes a lot of work and cost comes into every decision you make. Can you afford to buy something, will it boost your takings if you do or hurt them if you don't?

And it's easy to see why insurance might not appeal - especially as it's frequently not a legal requirement. So how much risk are you in by ditching it?

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. 

Do you need business insurance? 

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.

There are lots of policies on offer, and the right kind for you will depend on your business, its size, and how it works. For example, you can buy policies to cover specific jobs such as goods in transit cover and personal accident cover. Insurance for a DIY company, for example, will look very different for a policy for an accountancy firm. 

There are also policies such as ‘key-person’ insurance, which cover you if a key person to your business isn’t able to work, for example if they are ill. Most policies offer different levels of cover, which will reflect the price you pay.  

Your premiums are based on the risk to the insurer of you making a claim.

Therefore, if your home business is a copywriting company, the risk will be lower than if you operate machinery and often have to visit customer’s homes. 

To give you an idea of what's on offer, we've taken a look in depth at what a specific business might think about.

Business insurance is a way to protect your company against financial risk if things go wrong.

What insurance do I need for a home baking business? 

Photo of a woman taking a photo of a cake.

Whatever business you operate, from selling postal brownies to fixing washing machines, it’s worth considering insurance to cover you if something goes wrong.

Here are the main types available, many of which can be bundled together in one policy or bought as standalone insurance. 

Public liability insurance

  • This policy covers you if a member of the public is injured or their property is damaged because of an action relating to your business.

Professional indemnity insurance

  • You’ll be covered if a customer makes a legal claim against you for a financial loss to them because of work you have carried out. 

Employers’ liability insurance

  • You’ll only need this if you employ members of staff, and it’s mandatory. It protects you against claims made by employees. 

Product liability insurance

  • If a product you sell 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.

Business buildings insurance

  • Unless you work from home, you will be renting out a separate business space such as an office or shop and your buildings insurance will cover the space from damage. If you’re renting it from someone else, check what insurance is in place before you buy a policy. For home businesses, if you’re making alterations to your property - such as building an extra kitchen in your garage - check it’s covered with your home insurer. You may need to increase your cover.

Business contents insurance

  • You’ll be covered if your business premises or your stock are damaged or destroyed, such as by a flood, fire, or a 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 related 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.

Business interruption insurance

  • If you are unable to operate your business, such as if your office space is flooded or your supplies are damaged, this policy can provide cover so you don’t lose out financially. However, as with most types of insurance it only applies to scenarios you didn’t already know about, therefore things like coronavirus may not be covered. 

Business van insurance

  • If your business requires you to have and operate a van, to move your equipment around, for example, or for journeys to customer 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. 

These unsecured and secured loans could help you grow your business, cover running costs or even fund a new company.

When do I need to have business insurance?

The only policy that 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 £5million and come from an authorised insurer. You can find out more details on GOV.uk

Depending on the nature of your business, you may need to have other policies in place.

For example, if you sell food or drinks 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.   

What are the costs of not having insurance? 

You don’t need to legally 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 which 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 the 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 in comparison is a relatively small cost. 

The cost of business insurance can also be tailored for 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.