If you're confused about which types of small business insurance you need, you're not alone. The UK business insurance market can be very confusing. To help you figure out what you need for your small business, we've put together a list of 6 key questions. How you answer them will tell you which coverages you probably need, and which you don't.
1. Do you have in-person exposure to clients or other members of the public, or their property?
If you answered 'Yes' then you need public liability insurance. Anytime a business interacts physically with third parties or their property, there's risk of an accident leading to personal injury or property damage. And if that happens, your business could be blamed and sued. Third parties can include customers, clients, vendors, passersby and other people not part of your business—as well as their property. Public liability is one of the most common types of liability insurance for small businesses.
What it covers: Public liability insurance (PL insurance) covers accidental injury or damage claims made by third parties. It covers damages you're found liable to pay, as well as the legal costs to defend your business. Even if your business is not at fault, you may find yourself needing to defend a frivolous claim and having to pay thousands in legal fees—these can be covered by a public liability policy as well.
Public Liability Insurance Examples
- A plumber accidentally causes water damage to a client's wood floor and is sued for the cost of repairs.
- A decorator accidentally drops his ladder, breaking an expensive stained glass window. The customer goes after the decorator for the replacement cost.
- On a rainy day, a customer slips on a wet floor in a cafe, falling and breaking her hip. She sues the cafe.
- A passerby is injured by falling rubble on a construction site; the firm's construction insurance includes public liability cover to help with the subsequent claim.
2. Does anyone work for you?
If you've hired any employees, even short-term, temporary or paid-in-cash employees, you'll need to buy an employers' liability policy. It's required by law. There are a few exceptions, such as very close family members working for a sole proprietor or partnership, but generally speaking you do need it. Failing to have the right cover in place is illegal and can lead to fines of £2,500 per day your business is not covered.
On the other hand, independent contractors who provide their own equipment and work for multiple clients probably do not need to be covered by your business's EL insurance. To see a full list of when you do and don't need EL insurance, see our analysis here.
What it covers: Employers' liability insurance (EL insurance) covers claims made by your employees if they're injured or fall ill due to their work for your business. EL insurance covers the cost to defend your business and any damages your business is responsible for paying.
Employers Liability Insurance Examples
- A warehouse employee is injured while driving a forklift; they claim your business did not provide adequate training.
- A construction worker falls from height when scaffolding collapses, severely injuring their back and legs.
- An office worker develops repetitive strain injury from computer use; they accuse your company of not providing appropriate equipment.
3. Are you paid for your professional advice or services?
Occupations like accountants, architects, consultants, designers and more who are paid for giving professional advice or services need professional indemnity insurance. It's not required by law, but it may be a condition of some contracts and many professional bodies require a minimum level of cover. And even when not required, it's a good idea in most cases.
What it covers: Professional Indemnity insurance (PI insurance) protects against claims made by clients that a professional gave negligent advice or service, which led to a monetary loss on the client's part. PI insurance covers legal defence costs and compensatory damages (if your found guilty) in event a client claims you've delivered poor advice or service.
Professional Indemnity Insurance Examples
- A management consultant advises a client to buy a competitor to increase growth; the merger backfires and the client loses business and sues the consultant for giving negligent advice.
- An accountant fails to notify their client that they must register for VAT; the client sues for the unexpected cost of the VAT payments.
- An architect makes a mistake in drawings for a large construction project, which results in part of the structure needing to be rebuilt; the client sues the architect for the rebuild cost.
4. Does your business use costly equipment or hold valuable inventory?
IF so, you'll want to cover these items with a business contents policy. Be sure it covers the stock and/or office equipment, tools or other equipment you use as required—in many cases you must declare these items separately or you may not be covered.
What it covers: Business contents insurance covers the cost to repair or replace your business's physical goods from fire, theft, flood and more.
Business Contents Insurance Examples
- A fire in an office destroys the desks, chairs, computer equipment, communications systems and inventory.
- A flood damages the expensive kitchen equipment such as cookers, freezers and more in a small, family restaurant.
- Thieves break into a construction company's storage facility, stealing expensive tools and equipment.
5. Does your business own its premises?
If your business owns the building it operates out of, you'll need commercial building insurance. It's not required by law but might be a condition of a mortgage. Even if you own the property outright, the cost of commercial building insurance is relatively cheap compared to the cost to rebuild, and thus cover is highly recommended.
What it covers: Commercial building insurance protects your commercial building against risks like theft, fire, flood and more. If you rent your business premises then you don't need to buy buildings insurance; your landlord should have that covered—check to be sure.
Business Buildings Insurance Examples
- A fire rips through an office building, damaging walls, ceilings, floors, doors, windows, plumbing and electrics.
- Thieves break into a construction company's storage facility, damaging gates, doors and windows whilst gaining entry.
6. Do you process payment card information or store sensitive customer information?
If so, look into cyber insurance. Even if you don't hold sensitive customer information or process payments, cyber insurance can be an element of risk control for any business dependent upon computers, especially companies that employ networked environments. That said, even a self-employed sole trader with a single laptop can suffer from cyber crime.
What it covers: Cyber insurance covers losses related to hacking, data breaches, viruses and other cyber crimes. This includes direct costs incurred by your business (called first party claims) and claims from third parties that were harmed by the cyber attack on your business (third party claims).
Cyber Insurance Examples
- An employee at your company is tricked into opening a file containing malware that allows hackers to gain access to your company files and locks down your network. Cyber insurance pays for experts to deal with the situation, including paying a ransom if necessary, and may even reimburse lost income.
- You run a small accountancy business, and the database on which you store customer data is hacked. Hackers steal private identification and financial information. Your insurer pays for investigating the hack, legal fees, notifying customers, providing credit score monitoring for affected customers and any settlements or judgments.
In addition, depending on the risks faced by your business you may need other types of business insurance such as commercial vehicle, directors & officers and more. Read about the most popular types of business insurance here.
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