Small business insurance
Searching for business insurance can be particularly challenging, especially for start-ups. Seeking advice on insurance can save you a great deal of money and reduce the level of risk to which your business is exposed. This article will help you decide what kinds of insurance you may need.
What kinds of business insurance do I need?
When you run a business, you’re exposed to many more risks than you are when working for someone else. You have more responsibilities, and you also have more assets to protect.
There are many forms of insurance that a business may have. Some are compulsory (or compulsory for certain types of business), while others range from extremely important to just nice to have. Your accountant can advise you on which types to prioritise (and you should ideally research this when setting up your business).
Business insurance - what does it cover?
The main types of business insurance are:
- Employer’s liability insurance
- Public and product liability insurance
- Professional indemnity insurance
- Building and contents insurance
Here’s a quick run-down of each type and why you might need it.
Small business liability insurance
Every employer has a duty to look after their employees’ wellbeing, so employer’s liability insurance is compulsory (the only insurance that’s compulsory for every employer). If a member of staff gets ill or injured as a result of working for you, then your insurance can pay out any compensation due.
Legally you need at least £5 million cover, and you can be fined up to £2,500 for each day that you’re not covered. A financial adviser can help you find the best value policy.
Public liability insurance for small businesses
A customer slips on your wet floor, a brick falls from your building site and breaks a car windscreen, a meal from your café makes somebody ill… If your business is consumer-facing then public and product liability insurance is a very good idea.
Public liability insurance covers you for claims made against your business for causing harm to members of the public or damage to their property. Similarly, product liability insurance covers you in the event of one of your products causing harm or damage. Both kinds also cover any legal fees incurred in settling the claim.
Professional indemnity insurance for small businesses
If your business provides a service, rather than a product, then you may need professional indemnity insurance. If your advice or service causes a client to lose money (or something else of value, such as a contract), this insurance will cover you against claims and legal costs. It’s most often used by professionals such as consultants, solicitors, architects, engineers, accountants and IT contractors who work in a business-to-business capacity.
To decide on the level of cover you need, a good rule of thumb is to estimate how much your client could lose if you made a serious mistake. How much would it cost you to pay them back? Professional indemnity cover starts from around £50,000 but you might need to be insured for a far higher sum, depending on the nature of your business.
Small business contents insurance
Just as you insure your home and its contents against break-ins, fires and other misfortunes, so you should cover your business premises with buildings and contents insurance.
If you own the premises, you’ll definitely need buildings insurance as well as contents, but if you lease or license the premises you’ll only need contents insurance (as the landlord should have covered the building). Take care if you run your business from home – your home insurance might not be covered for business usage, in which case you may need to take out a separate policy for your business.
Ensure you have cover for everything you’ll need to get back to work quickly, including any plant and machinery or stock that may be lost. Otherwise a minor crisis like a flood could spell the end of your business.
The cost of business insurance
Your accountant and financial adviser can both help you to decide which types of cover and which policies will be best for your circumstances. They can also help you weigh up the cost of insurance versus the risks and potential benefits, so you can see whether it really is financially worthwhile taking out a particular type of insurance. Sometimes a small risk will not justify a large expense in insurance premiums. Conversely, a risk with a large potential impact (which could damage or end your business) will justify a larger insurance cost. Your accountant is best placed to assess these risks.
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