Small business insurance, like taxes, is one of those “unavoidable” in business that simply needs to be faced up to.
Unlike taxes, however, only certain insurances are required by law while others are optional.
Too many small businesses only take out the basic insurance policies as required by law (such as Employers’ Liability if you have employees and Professional Indemnity Insurance for certain professions) and ignore taking out other insurances, much to their peril.
This is understandable. Insurance providers are in the business of mitigating risk. You, as a business owner, are also in the business of mitigating risk, and spending a few extra hundred pounds a month or year for insurance might be considered riskier for you than the risk itself.
For example, cyber insurance might be considered a pointless expenditure because your business has a low technology footprint.
The real problem, however, is a lack of transparent answers as to what insurance policies companies really need. Insurance providers seem all-too-keen to sell their wares and so might give you the impression that you need any and every insurance policy out there.
This guide will attempt to demystify some of the elements of getting insurance for your business so that you can make an informed decision regarding whether or not you really need that particular cover.
In the UK, if you employ anyone in your business who is not a direct family member, then you are required to have Employers’ Liability Insurance.
Employers’ Liability Insurance is designed to cover an employer’s costs should any claim be made by an employee (or an ex-employee, in some cases) that some aspect of their employment has caused them some harm. This harm could be in the form of bad health or injury.
If an (ex-)employee wished to recover damages from the (ex-)employer, they would make what is called a “compensation claim” against the employer in order to be compensated for the alleged injury, bad health and so recover the costs incurred.
The validity of such a claim would be determined by the court, and it would be the court that orders it paid.
Such claims can run into many hundreds of thousands of pounds, depending on the type of illness or injury and what degree of specialist medical care was required to treat it.
Your chosen Employers’ Liability Insurance policy will cover the costs up to the policy’s limit. Higher limits equate to higher monthly premiums. But this might be necessary for high-risk industries such as construction companies or companies treating hazardous waste.
If your company uses motor vehicles to perform its services, then you must ensure those vehicles by law.
The minimum coverage required is “third party only” which would cover damages to other vehicles.
If you use a personal vehicle for work, you need to be aware that your personal vehicle insurance won’t cover you for business use! So, you would need to take out second, business-specific insurance for the vehicle.
(Note: Commuting to and from work is not considered “business use.”)
If your employees utilise their own vehicles for business, you do not need to insure them on their behalf.
Depending on the type of business you run, you might be required by law to get Professional Indemnity Insurance.
Professional Indemnity Insurance (PI) is there to protect people in professions that offer advice or provide a professional service.
Some examples of professions that are usually required to have PI include:
PI is designed to protect you from claims stemming from:
Sometimes, a client will insist that you have PI before they agree to work with you.
A small business is hacked every 19 seconds in the UK, and there are 65,000 hacking attempts carried out against small UK businesses every single day.
In the face of these threats, more and more companies are taking out Cyber Insurance.
Cyber Insurance is intended to cover damages not typically covered by other insurance policies. Specifically, they aim to offer protection against claims arising from data loss, data theft, data destruction, cyber-extortion, certain types of internet hacks, etc.
Some cyber insurance policies even go so far as to offer coverage which indemnifies companies for losses caused by the company’s own errors or omissions as well as any failure to safeguard information on the part of that company.
This insurance is not mandated by law (yet), but we predict that some incarnation of it very well might be in the near future.
In the meantime, it is a highly recommended insurance policy to get, if you can find one which does indeed cover the costs it purports to and which also doesn’t cost an arm and a leg.
This is another crucial insurance policy to consider if you own any property related to your business.
Property Protection insurance typically offers coverage for unexpected damage caused to property resulting from fire, flooding, burst pipes and subsidence (when the ground beneath a property starts to slowly cave in).
Property Protection Insurance can also be used to protect physical stock you have stored somewhere.
This insurance is not a legal requirement but is highly recommended in many cases.
This type of insurance is often overlooked by businesses. Many businesses also simply don’t know it exists.
Whereas property insurance against flooding and fire might cover the damages from the ensuing damage eventually, that type of policy does not cover any of the financial losses which occur as a result of the business not being able to operate.
Many businesses depend entirely on their physical presence to be able to actually perform their functions and duties. Business Interruption Insurance exists to ensure that any financial losses are covered while that premises is unable to be occupied or used.
Seeing as a flooded building can often require as much as two months to completely dry out, Business Interruption Insurance might be the difference between your business going under or not.
Business Contents Insurance is for protecting any business contents — such as possessions or equipment — kept at the workplace.
Please note that contents insurance for your private household will not cover business contents even if you run your business from home. You will need a separate policy to cover the business contents, specifically.
Claims can be made against a Business Contents Insurance if any of the business’s contents suffer damage or loss through:
Business Contents Insurance is particularly important if you hold vast amounts of stock on-site such as in the case of a warehouse. The policy can sometimes also be used to cover repairs on the contents.
If there is any chance at all that your profession or business might endanger members of the public, it is imperative that you take out Public Liability Insurance.
This insurance applies both if members of the public come to your workplace and are harmed there or if you go to their workplace or a public area, and harm ensues.
This type of insurance is particularly important for people involved in construction or “handyman”-a type of work where leaving tools lying around or falling objects could harm someone.
If someone is indeed injured at your site and they make a successful claim against you, then Public Liability Insurance will cover your costs up to the limits set out in the policy.
Some trade bodies automatically cover their members for public liability insurance. So, check the details of any trade body or union you belong to, to see if you might already be insured.
If you’re a tradesman whose lifeblood depends on your van being operational, you might want to consider van insurance.
Van insurance is not the same as run-of-the-mill car and motor insurance. It is a separate type of insurance specifically designed for protection against the risks typical to running and using a van on a daily basis.
The type of van insurance you need depends greatly on how you use your van, the type of van you’re operating and whether or not you also use the van privately.
Also called “Keyman (or key-man)” Insurance, this type of insurance is relatively unknown and yet quite important.
There is no legal definition of Keyperson Insurance.
Essentially, it is life insurance taken out for an individual in the company who is considered pivotal to the company’s financial success. Examples of such people might be a scientist with a unique set of skills or a key public figure around whom the company’s entire branding is built.
The company takes out life insurance or a trauma insurance policy on the person and is then compensated for any financial losses should anything occur that incapacitates that key person’s ability to perform.
Such a policy would only be valid for the term that the person is actively involved in the business as a primary generator of income.
If you are in the business of manufacturing or supplying goods, then you probably need to take out product liability insurance.
Even if you don’t manufacture the goods yourself, but those goods contain your brand name on them (as in the case of white-labelling), you could be held accountable for damages and injuries which occur as a result of the product.
No matter the precautions are taken, there is always a risk of malfunction or some other error in the manufacturing industry.
Famously (or, rather, infamously), there was the case of hoverboards which suddenly caught fire when they were used. In December 2020, Toyota recalled 20,000 HiLux vehicles due to risks with a faulty braking system.
If you run an eCommerce site and sell products there, then product liability is essential.
Even if your branding is not on the product, but you modify it in some way, then you can be held liable for any damages that ensue.
This type of insurance is also known as management insurance.
If you are a business founder or director, you might want to consider getting this type of insurance.
The D&O does not protect the entire business, but it offers cover specifically for the management team and the directors for any claims made against them personally.
Because the consequences of such claims can be severe for an individual (sometimes even leading to a prison sentence), it is important to ensure that you are covered for both legal costs and compensation costs should any such claims arise.
This type of insurance is sometimes demanded by investors before they decide to fund your company.
This is where things can get a little tricky.
Insurance policies are difficult beasts to tame. They contain plenty of “legalese” and, unfortunately, too often what isn’t covered is only discovered after a claim is made.
In this world of number-crunching and AI-powered decisions, the chance to speak to an experienced, live human being during the purchasing process has been greatly reduced.
Ideally, you would work with a consultant whom you can trust in order to select the right business insurances for you. Remember that many consultants get paid commissions (and, sometimes, recurring commissions) for the insurance policies they sell. Unscrupulous reps might suggest one policy provider over another simply because they’ll get a better cut.
That being said, not everyone is so dishonest in business. You should conduct wide-reaching research on your own. Look into online reviews or, better, ask people whom you know, who have had to claim from their own business insurances and have done so successfully.
That’s the way most successful business gets done — direct networking and recommendations.
No matter how hard you try, you can’t insure yourself against all possible damages.
And, even if you do, there might sometimes be clauses in the policy preventing a payout if it is found that you were in gross violation of applicable laws or even willfully neglectful.
Ensuring your business against potential harm to others doesn’t obviate your responsibilities as a professional and as an employer to ensure the safety and well-being of others.
Insurance is there to catch all the balls which slipped through — not all the balls you purposefully threw up into the air to see where they would land!
Take out only the insurance that makes sense for your particular industry and risk factors.
Indeed, the choices can be pretty overwhelming. And, as we mentioned, there simply isn’t enough transparent assistance around to help small businesses choose the right insurance policies for them.
That’s why we offer a free Small Business Insurance Selection Service which helps you figure out which insurance policies your company might need and then directs you to the companies we feel offer the best value for money for those policies.