Business insurance is designed to provide your business with financial protection against unexpected losses.
No matter the size of your enterprise, the occasional setback is to be expected: equipment could get damaged, or a liability claim could get filed against you. Investing in business insurance can lessen the financial strain associated with such difficulties and help keep your business afloat and operating.
This article will examine the different types of business insurance available, from public liability insurance to business interruption insurance.
What Is Business Insurance?
Business insurance is an umbrella term for the various forms of financial cover designed to protect a business against unexpected losses. Insurance can help cover the likes of legal fees, damage to equipment or stock, and employment disputes.
Employers liability is the only insurance that is a legal requirement in the UK, being mandatory for any business that employs staff. However, it’s common for a company to take out several different types of coverage to fully safeguard their enterprise.
Why Do I Need Business Insurance?
Although your small business may operate on a tight budget, investing in some level of insurance is necessary for keeping your business running in the long term.
The advantages of business insurance
- Business insurance policies provide peace of mind by financially protecting you from the unexpected. Insurance can help cover legal costs should a lawsuit get filed against you, and also safeguards your property against damage or robbery.
- Insurance gives your business credibility. Both customers and employees will feel safer knowing that you have taken precautionary measures to make your workspace as safe and protected as possible.
- It’s possible to get combined insurance policies that are made bespoke to your professional needs.
- Having insurance may increase your chances of obtaining loans, as lenders will consider your business financially secure.
The risks of not having business insurance
- You can be fined for not having Employers’ liability (EL) insurance.
- Having to cover legal costs or having to replace broken or stolen equipment could leave you bankrupt.
- You risk the safety and security of your employees, customers, and yourself.
How Does Business Insurance Work?
Insurance works as a signed agreement between a business and an insurance provider. The insurance policy will set a limit on how much cover it will provide should the worst occur. If the company experiences a loss that fits the cover protected, the insurer will pay out compensation to the business.
How to make a claim on your business insurance
In most instances, the business will have to cover the loss at first. To seek reimbursement, the business will have to file a claim with the policy provider. This claim will then be assessed. If it is deemed to meet the terms of the agreement, reimbursement will be provided.
How Can I Get Business Insurance?
The first step in getting your business insured is to identify the risks involved in your workplace. Consider the location of your operations, the materials you use, the number of staff members you employ, and how much contact you have with the public. Identify high-risk areas of your business, such as expensive equipment.
If your business is particularly niche, hiring an industry-specific broker would be a good idea. A broker would be able to identify all areas of your trade that pose a potential risk that may not fit traditional insurance policy models. For example, a software company may need cover against specific cyber threats. This broker will then be able to find an appropriate insurance provider.
When applying for insurance, you will need to fill out a proposal form and provide full disclosure of all material information. Material information refers to any facts that may contribute to the overall risk level of your business.
It’s important to disclose as much information about your business as possible, as the provider may use omitted facts against you when you make a claim.
What Does Business Insurance Cover?
Each type of insurance policy is designed to cover a specific financial risk. Insurance for business can be split into three main categories: liability, business interruption, and damage cover.
Liability policies cover legal fees and compensation payouts. This includes such insurance cover as public, employers’, and product liability.
Business interruption policies cover finances lost due to trade disruption, such as personal accident insurance and business interruption insurance.
Lastly, insurance policies can also cover damage to your property, stock, and equipment. This includes property insurance and vehicle insurance policies.
What Insurance Policy do I Need to Protect My Business?
The type of insurance policy you need depends on the type of business you run and how many employees you have. Below are the main types of insurance you’ll likely encounter:
Types of Business Insurance
- Employers liability insurance – This insurance type is a legal requirement for all businesses with more than one employee. It covers the costs of legal fees and compensation in the incident of an employee falling sick or sustaining an injury while working.
- Public liability insurance – In the event of a customer or client sustaining an injury while on your business premises, public liability insurance covers the cost of compensation. It also covers injury and property damage for businesses that visit clients, such as cleaning services.
- Product liability insurance – If a compensation claim is made against one of the products you sell or supply, product liability will cover the cost of the claim. This includes both products that you sell as well as products you give away for free. The product does not have to be manufactured by you.
- Professional indemnity insurance – Professional indemnity insurance is necessary if your business offers professional advice. It covers the cost of claims made against you by a client you wrongly advised. It can also cover defamation, document misplacement, and libel claims.
- Business contents insurance – This type of insurance policy financially protects your assets, such as business equipment, tools, and stock, from damage and theft.
- Business interruption insurance – Should your work premises get damaged by flood, fire, or any other event which limits the amount of trade you can do, business interruption insurance covers the income lost during this time.
What Is a Combined Business Insurance Policy?
Having risk-assessed your business, you may find you require cover for an array of risks. A combined business insurance policy merges many different insurance policies into one bespoke deal. A combined insurance policy is normally taken out by manufacturers, wholesalers, engineers, or any other business with a vast inventory and staff number.
The advantages of a combined business insurance policy
- Instead of confusing matters by maintaining several insurance policies, you can combine all of your insurance needs into one policy.
- It’s more cost-effective than investing in individual insurance policies. The more cover you add to the combined policy, the bigger the discount you’ll likely gain.
- It can be made bespoke to fit your employee number and production scale.
Is Business Insurance a Legal Requirement?
Employers’ liability insurance is a legal requirement for most businesses. If you employ another individual, you need employers’ liability to cover injuries they may sustain while working for you. The Employers’ Liability (Compulsory Insurance) Act 1969 states that an employer must take out £5 million worth of employers’ liability cover.
Employers’ liability insurance is also a legal requirement for businesses that take on volunteer staff. It is not a requirement, however, for companies that only employ, or are assisted by, immediate family members. If a business is caught operating with paid staff or volunteers without employers’ liability, they can be fined £2,500 per day.
Depending on your line of work, you may also find other types of insurance to be a requirement. For example, professional indemnity insurance is a requirement for all accountants and solicitors.
Will I Need Insurance for a Home-Based Business?
If you have employees working for your home-based business, you are legally required to have employers’ liability insurance. Additionally, if you start a business from home, you will need to inform your current home insurance providers and may be required to take out extra cover.
Types of insurance policies available for home-based businesses
- Contents insurance – If you are using additional equipment for your home-based business, such as computers and output devices, you should take out home-based business contents insurance to cover breakdowns.
- Property owners liability insurance – As the business owner, you are responsible for the safety of any client visit made to your home business. Property owners liability insurance will be able to financially protect you against injuries sustained by third party visitors.
- Cyber cover – Working from home, you most likely deal with financial transactions online. Cyber cover can insure you against loss of income through security breaches and data recovery costs.
There are also several combined insurance policies for niche home businesses, including the likes of home baking insurance. Such policies cover everything from tool insurance to personal accident insurance.
How Much Does Business Insurance Cost?
The cost of business insurance varies greatly. Not only is it dependent on the type of cover you take out but also whether you are investing in single or combined policies.
The cost of your insurance can also be influenced by the level of risk involved in your business, your business scale, level of excess, level of cover, and your insurance claim history.
For small businesses, public liability insurance costs £118 a year on average.
How to Compare Business Insurance Quotes
When comparing insurance quotes, analyse the inclusions and exclusions of each policy. Although two policies may be labelled the same, they are unlikely to offer the same level of protection.
For example, one product liability insurance quote may only cover products that you sell and not products that you give away for free. In contrast, another product liability insurance provider covers all products you provide. You can determine inclusions and exclusions by reading the fine print of each policy.
Secondly, you should consider policy limits and compare that with the value of your business. Ensure that you are getting sufficient coverage for a price you can afford.
Leading Business Insurance Providers
A number of providers offer single and combined insurance policies in the UK. Leading providers include the likes of:
Other providers that offer sector-specific cover include NFU Mutual, Markel, and Lloyds Bank. You can find a more detailed list on Small Business Prices.