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Small business insurance: everything you need to know

Updated 23 March 2022

6min read

Kate Morgan
Staff Writer

Handling insurance on top of everything else as a small business owner can feel overwhelming, but it’s one of the most important things you’ll need to think about. Here are the top 10 questions you should be asking yourself about small business insurance.  

  1. What are the insurance essentials? 

Every business is different, meaning each one will have different insurance needs. The cover you need will be affected by lots of factors, including: 

  • The turnover of your business 

  • How many employees you have 

  • The sector you operate in 

  • Whether you deal with the public or not 

  • Whether you have work premises 

The four main types of insurance for any small business owner are: 

  • Employers’ Liability (EL) insurance 

  • Public and product liability insurance 

  • Professional indemnity (PI) insurance 

  • Building and contents insurance 

We’ve previously discussed the small business insurance must-haves, so you can find more information in our article.  

  1. Do I need insurance for employees? 

Yes. Employers Liability (EL) insurance is essential if your business employs anyone, or if you supervise or direct someone. This type of policy will cover both you and your staff in case of injury or illness that’s a result of their work. For example, a tradesperson that you’ve employed could fall off a scaffolding and be out of work for a few months. Or, at the less dramatic end of the scale, your secretary could claim for repetitive strain from years of computer work.  

EL insurance isn’t just a nice-to-have. For most businesses with employees, it’s a legal requirement that should cover full-time, part-time and temporary workers, as well as people who have previously been employed by you. There are two main exceptions: 

  • Family businesses (where employees are the child, spouse or parent of the business owner) that aren’t limited companies 

  • Limited companies in which one employee owns more than 50% of share capital 

The minimum legal requirement is £5million of cover, but it may be prudent to increase the size of your policy if you work in a high-risk industry. Without the proper insurance in place, you can be fined up to £2,500 per day and could be liable for damages, medical costs and more.  

  1. What insurance do I need as an adviser? 

You may think that you don’t need advice if there’s no chance that you can cause physical damage to your clients or their property and possessions. But insurance for advisers is just as essential as it is for other small business owners.  

Not all businesses will need the same level of professional indemnity (PI) insurance and the cover you need will depend on the kind of clients you work with. For example, solicitors who advise multi-national companies will need more extensive cover, as even small mistakes can be very costly when working with international firms.  

You can check out our guide to professional indemnity insurance to find out more.  

  1. What insurance do I need to work with the public? 

If you deliver a service or product that involves you working with the public in some way, you’ll need public liability insurance. You'll be covered against claims between £1 million and £10 million, depending on the level of cover you choose. Not all businesses will need to take out a policy, but it’s wise if you:  

  • Visit customers, meaning your equipment or the work you carry out could cause damage or injury 

  • Are visited by customers, meaning they could potentially injure themselves on your premises 

  • Work in public, meaning your work could harm a customer, passer-by or property  

The purpose of public liability insurance is to protect you against the financial consequences of a claim that relates to your work. A personal trainer, for example, could be sued by a client for an injury that happened during a session, even if it had nothing to do with your service and simply happened on the premises by chance (like a sprained ankle). 

  1. What insurance do I need as a contractor? 

Contractors are likely to operate as sole traders, meaning they’re not likely to need insurance relating to employees. As well as the basics we’ve mentioned already, here are a couple of other types of insurance that all contractors should strongly consider: 

  • Tax liability insurance – You’ll be protected if HMRC choose to look into your accounts for matters such as IR35 enquiries, PAYE reviews and VAT issues

  • Travel insurance – While this isn’t strictly business insurance, taking out a travel policy to cover you, your possessions and any potential medical or legal costs during international work trips is a smart move.  

You can check out our detailed guide to contractor insurance needs for more information.  

  1. Do I need to insure my work premises? 

If you rent or own a separate property for your business, such as an office or warehouse, you’ll need commercial property insurance to cover any claims for your work premises. Taking out a policy is likely to be a contractual obligation if you rent the premises, as your landlord needs assurances that they won’t be financially responsible for any damage you cause.  

  1. Does my equipment need insurance? 

Your equipment is likely to be one of the most expensive things within your business, so it’s sensible to make sure it’s protected. Business Contents Insurance (BCI) is a great starting point, as it will insure the items on your premises against accidental damage and theft. It's not a legal requirement, and isn’t necessary for all businesses, but it’s sensible if you have high-value equipment or large volumes of stock that you couldn’t afford to replace.  

However, if you have specialist or high-value equipment, you may need to take out a specialist policy to ensure you’ve got the right level of cover. You can also insure intangible assets, like patents or data stored on your systems, that would cause you to suffer financially if they were lost. If you’re not sure exactly what kind of cover you need, it’s always best to speak to an adviser or broker first.  

  1. What are the consequences of not being properly insured? 

Here are a couple of horror stories to show you exactly what we mean. Australian company BizCover shared the terrifying tale of how a simple mistake on a marketing and design agency’s website cost the company AUD$1.2 million (£637,000). A staff member incorrectly stated that one of the company’s clients had been deregistered and had stopped trading, causing the mining company to issue a claim for defamation and reputational damages.  

Even if your mistake isn’t quite so costly, it can still have an impact on your business. Another website shared the story of a handyman company that didn’t purchase the right insurance before installing a TV. When one of the workers accidentally dropped it, the company had to buy the customer another one.  

If you’re just starting out, profit margins are likely to be small, meaning even a few hundred pounds of liabilities could tip you into debt. But even if there are no significant financial consequences of your mistakes, proper insurance can help you deal with any legal processes swiftly and comprehensively, minimising any negative reputational impact. 

  1. Does my insurance cover everything I need? 

You've worked out which policies you need and have found providers offering a good deal. Surely that’s all you need to do. Sadly, not all insurance policies were created equal. Before settling on a provider or product, it’s essential to scrutinise the exact level of cover each policy offers you.  

For example, in the wake of the 2004 Hurricane Katrina in the US, many business owners had a nasty shock after realising their property insurance did not cover damage from floods. Livelihoods were lost due to not having the correct insurance. It's essential to sit down with an adviser if you don’t understand exactly what your policies cover to ensure you’re as protected as possible.  

  1. Can an adviser help me sort out small business insurance? 

Thankfully, an adviser can help you work out exactly what you need to be fully covered as a self-employed individual or small business owner. You can also pick the brains of an experienced accountant or independent financial adviser (IFA) to make sure your finances are in the best possible shape.  

Unbiased has 27,000 independent financial professionals across the country. Let us match you to your perfect financial adviser. 

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About the author
Kate has written for leading publications and blue chip companies over the last 20 years.