Insuring your business is essential to protect you against costly bills, hefty fines, disqualification and even jail time. But choosing the right policy can be daunting.
In the UK, insurers pay out a whopping £22 million every day in business insurance claims. This jaw-dropping figure demonstrates the risk that every founder faces – and how vital it is to make sure your business is protected.
But choosing the right type of cover can be confusing. UKBF members regularly ask what type of small business insurance they should take out. As such, we’ve decided to explore the subject in more depth, while signposting helpful resources.
If you already know what kind of cover you need, but don't want to spend hours scouring the internet looking for the right cover, you can compare quotes from leading providers with the help of our friends at Smart Business, working together with their insurance partners, Simply Business.
“EL covers your business in the event that one of your staff members claims they’ve suffered an illness or injury as a result of working for you. It covers any legal and compensation costs involved in defending the case,” Companies House advice states.
The Health and Safety Executive (HSE) can fine you £2,500 for every day that you are not properly insured.
Some companies are exempt from EL, including family businesses which are not incorporated as limited companies, and companies employing only their owner where that employee also owns 50% or more of the issued share capital in the company.
The HSE has a detailed guide on employers' liability insurance, including exemptions.
A common misconception is that personal vehicle insurance will cover business-related activities. However, personal policies typically only cover commuting to your place of work.
While not a statutory requirement, some businesses are required to have professional indemnity insurance by their professional bodies or regulators, according to the Association of British Insurers (ABI).
These include:
Here are some types of insurance you should consider:
Ultimately, if your work puts you in contact with members of the public and their property – you need this cover in place.
“If you, or one of your team, accidentally causes injury or property damage to a member of the public, your business could face hefty legal fees and compensation costs running into the millions. This is where PL is so important, picking up the bill and keeping your business up and running,” Companies House advice states.
This covers you against things like fire, flooding, burst pipes, deliberate vandalism, and accidental damage (as long as it isn’t negligent).
In the event that your company premises are damaged or destroyed, buildings insurance covers the cost of repairing or rebuilding the premises.
For businesses that rent their premises, it’s the landlord’s responsibility to ensure cover is in place.
“You should always insure your business premises against the cost of rebuilding the property, not against its sale price or current market value,” the ABI advises.
The ABI advises company owners to insure stock against its cost price, not its sale price.
“If there are times when you have more stock on your premises than usual, for example in the run-up to Christmas, you should make sure your insurance covers this,” the ABI recommends.
Cyber liability insurance covers businesses for any damage inflicted due to data breaches and cyber-attacks.
“In the event that you’re hit, cyber insurance will cover any legal claims, compensation costs, and fines under the GDPR (where legally insurable). In some cases, it can provide a fast response plan including legal, IT, PR and customer service support,” Companies House advice states.
“Directors’ and officers’ liability insurance (D&O) protects the individuals who have management responsibility in the business. It covers them for any claims against them personally, including breaching health and safety laws, misadministration of the company pension, or errors in financial reporting,” Companies House advice states.
If such a claim arises against you, penalties can include significant fines, disqualification – and even a prison sentence. D&O covers legal representation and compensation costs.
As a critical part of your financial planning, you should consider business interruption insurance. This is often included as an add-on when taking out other business insurance.
There is usually an excess of £100-£250 that applies so you will only be covered for cash over this amount. If you’re being charged and have little cash, remove the cover and save a few quid.
While some contents insurance policies provide an element of cover for home business equipment, it’s worth checking the terms and conditions and discussing them with your provider.
If your business has stock, this definitely won’t be covered by home and contents insurance. In this case, you might consider something like stock insurance or online retailer insurance.
On working from home, the ABI states: “If you store stock or expensive equipment in your home, it should be covered against theft or damage. If you offer online services or handle client data, you might want to consider professional indemnity insurance. If you have clients visit your home for meetings, public liability insurance will offer protection should they have an accident or suffer an injury while on your premises.”
If you run a home-based enterprise, check out our guide on the implications of running a business from home.
These are a few pointers to consider when looking for business insurance. But only you can decide what is best for your SME.
Always seek the advice of an independent insurance broker, who will work with you to fully understand how your company works.
By getting to know you and your business, they will be in a good position to provide the best advice possible on any risks to your company and the options available.
Remember to get several quotations, detailing the different covers and associated premiums, so you can make an informed choice as to the pros and cons of the cover being offered.
Also, make sure to choose a broker that is a member of the Association of British Insurers (ABI) or the British Insurance Brokers’ Association (BIBA).
In the UK, insurers pay out a whopping £22 million every day in business insurance claims. This jaw-dropping figure demonstrates the risk that every founder faces – and how vital it is to make sure your business is protected.
But choosing the right type of cover can be confusing. UKBF members regularly ask what type of small business insurance they should take out. As such, we’ve decided to explore the subject in more depth, while signposting helpful resources.
If you already know what kind of cover you need, but don't want to spend hours scouring the internet looking for the right cover, you can compare quotes from leading providers with the help of our friends at Smart Business, working together with their insurance partners, Simply Business.
What insurance does my business need by law?
In the UK, there are some types of insurance your business must have by law. Failure to have the right policies in place could be costly.Employers' liability insurance
If you are an employer, you are legally obliged to have employers' liability (EL) insurance. Your policy must cover you for at least £5 million and come from an authorised insurer.“EL covers your business in the event that one of your staff members claims they’ve suffered an illness or injury as a result of working for you. It covers any legal and compensation costs involved in defending the case,” Companies House advice states.
The Health and Safety Executive (HSE) can fine you £2,500 for every day that you are not properly insured.
Some companies are exempt from EL, including family businesses which are not incorporated as limited companies, and companies employing only their owner where that employee also owns 50% or more of the issued share capital in the company.
The HSE has a detailed guide on employers' liability insurance, including exemptions.
Business vehicle insurance
Business vehicle insurance, or commercial vehicle insurance, is a legal requirement for any business that uses a vehicle for work-related purposes – even sole traders.A common misconception is that personal vehicle insurance will cover business-related activities. However, personal policies typically only cover commuting to your place of work.
Professional indemnity insurance
Professional indemnity insurance protects against claims that you provided negligent services or advice.While not a statutory requirement, some businesses are required to have professional indemnity insurance by their professional bodies or regulators, according to the Association of British Insurers (ABI).
These include:
- Solicitors
- Accountants
- Architects
- Chartered surveyors
- Financial advisers
- Some healthcare professionals
Business insurance policies you should consider
All other types of cover are optional and as a business owner, you are best placed to decide what protection your company needs.Here are some types of insurance you should consider:
Public liability insurance
Public liability (PL) insurance protects you in case you cause damage to something or injury to someone in the course of your work. It’s one of the most common types of cover for small businesses.Ultimately, if your work puts you in contact with members of the public and their property – you need this cover in place.
“If you, or one of your team, accidentally causes injury or property damage to a member of the public, your business could face hefty legal fees and compensation costs running into the millions. This is where PL is so important, picking up the bill and keeping your business up and running,” Companies House advice states.
Buildings insurance
If you own any kind of commercial property, you should seriously consider commercial property insurance for your SME.This covers you against things like fire, flooding, burst pipes, deliberate vandalism, and accidental damage (as long as it isn’t negligent).
In the event that your company premises are damaged or destroyed, buildings insurance covers the cost of repairing or rebuilding the premises.
For businesses that rent their premises, it’s the landlord’s responsibility to ensure cover is in place.
“You should always insure your business premises against the cost of rebuilding the property, not against its sale price or current market value,” the ABI advises.
Contents insurance
Business contents insurance covers the cost of replacing stock, equipment, tools and furniture in your company premises if it’s stolen or damaged.The ABI advises company owners to insure stock against its cost price, not its sale price.
“If there are times when you have more stock on your premises than usual, for example in the run-up to Christmas, you should make sure your insurance covers this,” the ABI recommends.
Cyber liability insurance
In 2022, 39% of UK businesses fell victim to a cyber attack. The average cost of each attack was around £4,200, rising to £19,400 for medium and large businesses.Cyber liability insurance covers businesses for any damage inflicted due to data breaches and cyber-attacks.
“In the event that you’re hit, cyber insurance will cover any legal claims, compensation costs, and fines under the GDPR (where legally insurable). In some cases, it can provide a fast response plan including legal, IT, PR and customer service support,” Companies House advice states.
Directors’ and officers’ liability insurance
As directors of a company, you have legal obligations under the Companies Act. You could be personally liable for failings in your duties and claims can be made directly against you.“Directors’ and officers’ liability insurance (D&O) protects the individuals who have management responsibility in the business. It covers them for any claims against them personally, including breaching health and safety laws, misadministration of the company pension, or errors in financial reporting,” Companies House advice states.
If such a claim arises against you, penalties can include significant fines, disqualification – and even a prison sentence. D&O covers legal representation and compensation costs.
Business interruption insurance
What would be the impact on your enterprise if an unexpected event meant you couldn’t operate as normal? For example, if a supplier you rely on for a major part of your sales had a fire and you couldn’t get stock.As a critical part of your financial planning, you should consider business interruption insurance. This is often included as an add-on when taking out other business insurance.
Cash insurance
Does your company hold any cash or only a few pound coins in the petty cash jar? If your policy has this cover, check if there is a charge for this.There is usually an excess of £100-£250 that applies so you will only be covered for cash over this amount. If you’re being charged and have little cash, remove the cover and save a few quid.
What cover does my home-based business need?
If you operate from home, items used specifically for business purposes – your work computer, for example – might be covered by your home insurance policy.While some contents insurance policies provide an element of cover for home business equipment, it’s worth checking the terms and conditions and discussing them with your provider.
If your business has stock, this definitely won’t be covered by home and contents insurance. In this case, you might consider something like stock insurance or online retailer insurance.
On working from home, the ABI states: “If you store stock or expensive equipment in your home, it should be covered against theft or damage. If you offer online services or handle client data, you might want to consider professional indemnity insurance. If you have clients visit your home for meetings, public liability insurance will offer protection should they have an accident or suffer an injury while on your premises.”
If you run a home-based enterprise, check out our guide on the implications of running a business from home.
What else should you consider?
You can now compare insurance quotes to find the right cover for your small business with our friends at Smart Business. With the support of leading insurance provider, Simply Business, they'll help you compare dozens of quotes for everything from public liability to landlord insurance. Start comparing your options today.These are a few pointers to consider when looking for business insurance. But only you can decide what is best for your SME.
Always seek the advice of an independent insurance broker, who will work with you to fully understand how your company works.
By getting to know you and your business, they will be in a good position to provide the best advice possible on any risks to your company and the options available.
Remember to get several quotations, detailing the different covers and associated premiums, so you can make an informed choice as to the pros and cons of the cover being offered.
Also, make sure to choose a broker that is a member of the Association of British Insurers (ABI) or the British Insurance Brokers’ Association (BIBA).
And finally… did you know?
If you already have a policy in place, many will include additional services useful to business owners. These include:- Legal advice: free telephone legal advice on any business-related matter with a solicitor who specialises in the particular area concerned
- Tax advice: free telephone advice with a tax specialist on UK tax matters
- Fee disputes: if you have professional indemnity insurance and your client is refusing to pay your fees as they allege that you have failed to provide the agreed services, your insurer will work with you to defend the allegations, thereby freeing you to pursue the debt
