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Ultimate Guide to Small Business in the UK
Whether you're ready to compare small business insurance quotes or you want to learn more about which types of business insurance you need, we can help. Below we explain the ins and outs of popular types of insurance for small businesses in the UK, including examples for each so you can see how they work and decide which is best for you.
- What are popular types of small business insurance?
- Which types do I need?
- Where can I get small business insurance quotes?
- Small business insurance costs
What are Popular Types of Small Business Insurance?
While each small business is unique, there are a few types of business insurance consistently popular with small businesses in the UK. Below we explain what each one broadly covers, and provide some real-life examples to help you decide what types of cover are most appropriate given your individual circumstances. If you still have questions, fill out a quote form and you can get a call back from a panel member to discuss.
Small Business Public Liability Insurance
Public liability insurance is critical if your business (e.g., you, your employees) deals in-person with members of the public, such as customers, clients, a landlord or other people—this could be on your business premises or even off site (e.g., at events, visiting a client, etc.). Why? If a third party is accidentally injured or their property damaged because of your small business, your company could face a lawsuit.
Even if your business is not to blame, public liability insurance can be a valuable resource by providing access to a legal team to support your defense if you're sued. PL insurance covers both legal expenses to defend your small business and compensation claims if it's found liable. How much public liability insurance do you need for a small business? It depends on the risk faced by your company, the size of your company, etc., but for reference, public liability insurance is commonly sold with £1 million, £2 million, £5 million and £10 million of cover in the UK. Get quotes here.
- Bodily Injury: You own a cafe that has a self-serve water station where customers can help themselves to glasses and pitchers of water. After some children spilled water on the floor, a elderly customer slipped on the wet floor and injured their back. They decided to sue your cafe for damages.
- Property Damage: A fire in your restaurant's kitchen damages the business next door. They sue you for damages.
- Property Damage: You have a plumbing business that performs residential work. An employee accidentally knocks a valuable painting off the wall when bringing equipment into a client's property, damaging it.
It’s important to note that public liability insurance is third-party insurance, which means it covers you against claims by third parties, such as customers, vendors, or landlords. Claims by your employees are not covered under public liability insurance (you need employers' liability for that).
Product Liability Insurance
Product liability insurance protects against claims that your small business's goods or products have caused bodily injury or property damage. If you design, make and/or sell a product, or if you fix things, strongly consider buying product liability insurance—it's often sold together with public liability insurance (discussed above). In addition to product designers and manufacturers, tradespeople like builders, plumbers and electricians should consider product liability insurance, plus those selling on ebay, Etsy, Amazon, etc.
- You own a small business that sells dog toys. You outsource the production of your toys to a Chinese company. The stuffing in a new line of toys causes some dogs to become sick when they inevitably tear open the toys. One dog falls particularly ill, and the owner sues you for vet treatment costs and damages.
- You own a small business that designs and sells shoes. A woman has a serious injury after falling when the heel breaks off of one of her high heels—a pair you designed. She sues your small business.
Professional Indemnity Insurance
Professional Indemnity (PI) insurance protects your small business if you sell expertise (e.g., advice or professional services). PI insurance covers claims by clients alleging they suffered a financial loss due to negligent advice or service given by your small business (for example, a mistake or error in work); this type of business insurance will give you access to a legal team, cover legal defence fees and, if you're found liable, pay any compensation your business is required to pay.
Depending on the work you do, some of your clients might contractually require that your small business have a valid professional indemnity insurance policy in place. Small businesses that might need PI insurance include, but are not limited to:
- Web developer
- Wedding planner
- A small contractor business works on a commercial building. One of their employees gives advice to the client that results in a costly error. It costs thousands of pounds to put the situation right and the business is sued by the client to compensate for their financial loss.
- A property management company manages a residential rental property containing a large number of flats for the building owner. A windstorm causes a leak in the roof, but the management company does not get it fixed in a timely fashion, resulting in expensive internal water damage. The building owner sues the property management company for negligence.
- A small software business creates a custom piece of software for a client. After delivery, the client identifies critical errors in the software that result in a loss of client data. The client sues the software development business for work errors and negligence.
Note: Small businesses in the salon industry (e.g., hair, beauty, barber, etc.) would buy an insurance product similar to professional liability insurance called "treatment cover", which covers injuries to customers or clients that occur during or due to your company's work.
Employers' Liability Insurance
If your small business employs anyone, it will need employers' liability insurance (EL)—this type of insurance is required by law even for casual or temporary workers. There are just a few exceptions when you don't need EL cover.
EL insurance can be expensive compared to other types of business insurance but it protects against compensation claims by current or former employees if they fall ill or are injured because of their work for you. It covers both legal fees in defending yourself from a claim and any compensation you're required to pay.
- An employee injured their back at work whilst moving heavy boxes. They blame you for faulty training and sue you for damages.
Commercial Property Insurance
Whether your business owns its premises or you rent and simply need contents insurance, commercial property insurance is critical for protecting against perils like fire, flood and theft. Contents cover can protect against damage, loss or theft of valuable equipment, furniture & furnishings, computers and other business items that can be expensive to replace. Whether you rent your premises or own them, contents cover can be a critical component of insurance. And commercial buildings insurance protects the structure and, while not required by law, is a good idea for any property owner.
If your small business has valuable stock, you can pay an extra premium on your contents insurance to get stock cover. Stock cover provides financial protection if your stock is lost, stolen or damaged. As with everything there are exclusions, for instance frozen food isn't usually covered (but sometimes you can pay extra for this if you need it), nor is general deterioration of stock.
The right property insurance not only provides financial protection, it also helps get your small business up and running again if you do face a disaster.
- Contents and Stock Insurance: You have a t-shirt company, which involves creating and distributing your designs. A fire at your rented warehouse results in all your t-shirt stock being destroyed.
- Buildings Insurance: Your cafe has a fire in the kitchen, which results in significant damage to the building. Extensive repairs are required before the building is safe to occupy again.
Business Buildings and Contents Insurance
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Legal Expenses and Tax Investigation Insurance
Business legal expenses insurance (LEI) covers situations that your small business might face such as contract disputes, tax enquiries, debt recovery and more, providing access to an expert legal team and paying your legal defence/expert costs up to the policy limit for situations such as:
- Employment disputes
- HMRC tax enquiries
- Failed health & safety inspections
- Contract disputes
- Debt recovery
- Property protection
- Identity theft
- and more
- You have a contract dispute with a supplier and need expert legal advice.
IT and Cyber insurance
If your small business processes payment card information or stores sensitive customer information such as names, addresses and banking information then you might want cyber insurance. Cyber insurance covers financial losses due to cyber crimes such as hacks, data breaches, viruses and more. A good policy will cover direct costs incurred by your business and also claims from third parties that were affected by an attack on your business systems.
- An employee opens an email attachment that contains a virus, allowing hackers to gain access to business files and sensitive customer information. Cyber insurance provides experts to deal with the situation, including credit score monitoring for affected customers, ransom payments, etc.
Other Types of small business insurance
Additionally, there are other types of business insurance that a small business might need. For example, a limited company with directors and officers will want D&O insurance. A number of businesses also buy business interruption insurance, which provides protection if your business premises are physically damaged or made inaccessible due to fire, flood or storm (note: business interruption insurance doesn't usually cover lost revenues due to situations such as the coronavirus).
Do I Need Insurance for a Small Business?
A small business might be required to buy certain insurances in order to trade. For example, if your company is regulated by or a member of certain trade bodies then certain insurance coverage might be required. In addition, any small business with employees is required to hold employers' liability insurance.
Even if you're not required to hold insurance, it's a good idea for nearly all small businesses. Without the right insurance in place, your company can find itself in a tricky situation such as a lawsuit or financial loss that could have been mitigated by the right insurance coverage.
For example, even if a liability claim against your small business is unfounded and you've done nothing wrong, if you're sued you'll still need to hire experts and a legal team to defend your business—which can cost thousands and thousands of pounds. The right insurance not only pays for this, it should also help you find the right experts—this can be a huge bonus for small businesses in particular, as they typically don't have in-house lawyers. In addition, liability insurance can also pay any compensation you're required to pay if found liable; these can reach into the tens or hundreds of thousands of pounds or even more.
When you need public liability insurance: One of the most common types of small business liability insurance is public liability insurance, which protects against claims of injury or damage made by third parties. Public liability insurance is usually needed if your business has in-person exposure to clients or other members of the public, including vendors or your landlord, for instance.
When you need professional indemnity insurance: If your small business (e.g., you or your employees) gives advice or offers a professional service (e.g., designer, architect, solicitor, etc.) then professional indemnity insurance can protect against claims made by clients who claim they've suffered a financial loss because your company hasn't done its job properly or made errors. Small businesses who practice accountancy, architecture, engineering, surveying, law, financial advising and insurance broking are required by regulatory or professional bodies to hold professional indemnity insurance.
When you need employers' liability insurance: If you hire any employees, even if they're temporary or short-term employees, your small business is required by law to hold employers' liability insurance in most cases.
If you're still uncertain about which is the best type of small business insurance for you, check out the six questions that can help you decide in our article What insurance does a small business need?
Where Can I Get Small Business Insurance Quotes?
If you want quotes from a range of insurance providers, it can be simplest and quickest to use a search engine like the one powering our small business insurance partner QuoteZone. Click here to fill out a short quote form and be connected with up to 5 insurance providers. You’ll have a chance to build a policy to fit your needs specifically, and ask any questions you might have before signing up. There are also other options for getting small business insurance quotes, which you can read about in our article How to Get Liability Insurance for a Small Business.
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How Much is Insurance for a Small Business?
The average cost of small business insurance starts from under £100 a year for basic liability coverage, but insurance costs can rise into the thousands of pounds depending on your industry, the additional coverages you need and the details of your application.
To give you a better idea of the potential costs involved when insuring a small business, here are some average quotes for two different sample small businesses in the UK. For each metric, we've taken the 5 cheapest quotes we could find for our sample small businesses; your costs could be higher or lower.
Example 1: Small Building Company
Public and product liability for a small building company costs in the range of £100 to £500 a year, depending in part on the structure of your business. Limited companies with multiple directors cost more to insure. Employers' liability isn't cheap given the risks involved in building work, and you can expect to pay around £200 per employee but you'll pay less per person as your roster grows.
Tools cover was roughly £700 for £10k worth of tools, so long as you take the tools inside at night; leaving them in a locked vehicle overnight would nearly triple the cost of cover.
|Example Small Business Insurance Costs: Building Company|
|Public Liability (£5m) - sole trader||£100|
|Public Liability (£5m) - limited company with 2 directors||£500|
|Employers' Liability - 1 employee||£200|
|Employers' Liability - 5 employees||£900|
|Tools (£10k value, not left in van overnight)||£700|
Example 2: Small Restaurant
Minimum insurance costs for a small restaurant are typically on the high side as well, because they typically have multiple employees to cover under their employers' liability cover. In addition to restaurants presenting risk to employees (in terms of injuries), customers are more likely to be injured in a restaurant than, say, a shoe shop—e.g., slipping on a wet floor or getting burned—so public liability insurance costs can be higher as well. The minimum coverage of public liability and employers' liability for our sample restaurant cost £725 a year.
|Example Small Business Insurance Costs: Restaurant|
|£2m Public Liability (PL), Employers' Liability (EL)||£725|
|£10k Stock, £25k Contents||£175|
|£25k Tenants' Improvement||£900|
|£250k Buildings and Contents||£2,700|
Example 3: Consulting Business Example
A small consulting business is much cheaper to insure, due to lower risks to the insurer. Public liability might only cost 60 quid or so. Professional indemnity was particularly variable in price, and not all insurers cover this risk—our example case was quoted between £30 and £500! So it's definitely worth comparing prices for professional indemnity coverage.
Since there's less chance of injury in consulting work than, say, working as a builder, a small consulting business will typically pay less for employers' liability insurance than a business in a riskier industry.
|Example Small Business Insurance Costs: Consulting|
|Public Liability (£2m)||£60|
|Professional Indemnity (£2m)||£50+|
|Business Equipment (£10k)||£130|
|Employers' Liability (2 employees)||£180|
As you can see from the examples above, the cost of small business insurance is highly variable. Ultimately, business insurance premiums depend on factors such as the size of your business, your turnover, the number of employees, the type of work you do, where you're located, previous claims history and more.
For example, small businesses in less-risky professions like cleaners, dog walkers, photographers, teachers, tutors, caterers, DJs, etc. will cost less to insure, while more dangerous small businesses like gardening and contracting can present a higher risk to insurers and consequently cost more to insure. This is not a surprise because these types of businesses are more like to expose third parties to riskier equipment and situations.
Also keep in mind that if you use your personal car for business use (that is, driving to visit clients or between multiple work locations), you need to declare business use on your car. Your car insurance premiums are likely to rise as a result, but if you don't declare business use when you should, your insurance could be deemed invalid (essentially leaving you uninsured).
If you have any in-person interactions with third parties such as clients, customers, vendors, your landlord, etc. or their property then yes you should have public liability insurance. Get a quote here, and a panel member can call you back to discuss any questions you still have.
A small business may be able to trade without insurance, so long as it has no employees and is not bound by insurance requirements by a trade or professional body—but that doesn't mean it should. Small business insurance can cost less than you'd expect and can protect against a wide range of risks.
Public liability, which protects against general injury and damage claims made by third parties, costs from as little as £50 a year or so. This cost range applies to small businesses in less risky industries like teaching, consulting, etc. Higher-risk small businesses like a building company can cost 10X or more to insure.
On a monthly basis, small business public liability insurance costs in the range of £4 to £40 per month—but be aware that some insurers will ask you to pay annually instead of monthly when your premium is below a certain threshold.
To insure your small business, click here to fill out a quote form. If you are not sure which coverage you need or have other questions, a panel member can call you back to discuss your situation.
There are three primary types of liability insurance a small business might need: public liability insurance to cover third party injury or damage claims, employers' liability insurance to cover employee injury or illness claims and professional indemnity insurance to cover claims by customers that you've given poor advice or been negligent in the professional service you delivered.
While insurance needs vary from business to business, it's quite common for small businesses to need public liability insurance, employers' liability insurance and professional indemnity insurance. In addition, there are additional coverages that can protect your small business such as property insurance, business interruption, etc. Read more about small business needs here.
The average cost of property insurance in the UK is very roughly 0.1% of the building's rebuild cost. So for example the average cost of business building insurance for a property with a £200,000 rebuild cost is around £218 per year.