What business insurance do I need? A guide for small businesses.
Choosing the right insurance depends on the type of business you operate, how big it is, and what needs protecting.
Making sure that you have the right level of insurance for your business is crucial.
Not only will it cover your business against loss or damage to your equipment or working premises in the event of a fire, flood, or other unforeseen circumstance (in a similar manner to home insurance policies), but certain types of business insurance will also cover the cost of any compensation awarded to a third party as the result of your business activity.
The right type of business insurance can even provide cover for any potential loss of profit that you might suffer as the result of an insured event. For example, if you have to temporarily reduce your trading activity due to a fire or flood damaging either your business premises or stock.
But although making sure that you have the right cover in place for your business is critical, it can be difficult to know the exact types of insurance you need to take out.
Here, we give you a rundown of all the major business insurance products that you need wherever you're working. Read on to find out more, or click on the links below:
- Why do I need business insurance?
- Types of business insurance
- What insurance do I need for my business?
- How much does business insurance cost?
- Home business insurance for homeworkers
- Do I need employers' liability insurance?
- Do I need office insurance?
- Do you provide a service or a product?
Why do I need business insurance?
As the title suggests, business insurance is specialist insurance that’s designed to cover businesses from losses or damages that may occur during the course of their business activity.
For example, if your business computer is stolen or damaged, the right business insurance policy will either cover the cost of the computer or arrange a replacement.
You can also get cover for claims made by a third party against your business and any professional advice that you may provide (for example, if you’re an architect or designer).
Without the business insurance, you would have to cover the cost of:
- Any damage to your equipment or premises.
- Any compensation that may have to be paid due to injury or property damage claims brought against your business by third parties if you're found liable.
- Any loss of income due to an insured event (such as a fire or flood).
Needless to say, any or all of these could have a devastating impact on your business.
An insurance policy can also act as a kind of credential in a business-to-business setting.
By having a high level of cover for your business, you'll also be demonstrating that you take important risk issues such as health and safety very seriously, which will almost certainly reassure potential customers and business partners alike that you’re worth trading with.
Types of business insurance
When it comes to insuring your business, there are a number of options available including:
- Home business insurance - which covers businesses that are run from a home address.
- Public liability - which insures your business against third party claims for personal injury or property damage if you're found liable.
- Professional indemnity - covers your professional advice.
- Employers' liability - provides cover for claims made by employees who suffer an injury or illness while working for you, if you're found liable.
- Office insurance - which covers businesses which are run from a commercial premises (whether owned or leased) and can include cover for office contents, business equipment and business interruption as well as liability cover.
- Product liability - insures your business against claims for injury or property damage caused by a product that you sell or supply, if you're found liable.
What insurance do I need for my business?
There are a lot of different business insurance covers available, but it's important to bear in mind that not every business will need them all.
For example, a smaller home business or sole trader won't need the same cover as a bigger company that has employees.
So, before you take out an insurance policy, it's important to take some time to think about what it is that your business does to avoid paying for insurance that you don't really need.
Take some time to consider the following:
- The cost of your business insurance
- Will you be working from home?
- Will you be working away from home?
- Do you have employees?
- Are you responsible for your business’s premises, or the equipment in the office?
- Do you provide a service or a product?
Let's take a look at each individually to help shed some light on the types of insurance that your business may need.
How much does business insurance cost?
The cost of your business insurance will largely depend on the type and the level of cover you need. The size of your business and type of work you do will also impact how much you pay.
For example, if you work with machinery or have members of the public visit your work premises, these are things that will determine the cover you need. And there may also be optional extras you wish to add to your policy.
Home business insurance for homeworkers
Flexible working hours, no daily commute, and less stress are just some of the reasons that running your business from home could be a good idea.
But whatever your reason is for running your business from home, you need to make sure that you have the right insurance in place to cover your business.
This means making sure that your business has adequate cover for:
- Business contents - for example computers, stock, and equipment
- Any products that you sell or supply, and for customers visiting your business at home or if you attend events
- Business interruption - in case you have to reduce trading, or temporarily stop altogether following an insured loss
- Building insurance
Home business insurance covers business activities that take place at your home address (provided that you're allowed to do so under the terms of your rent agreement or mortgage). So, if a customer or client trips and injures themselves while visiting you at your home, you'll be covered.
Home business insurance will also cover your business contents such as computers, stock, and equipment against damage and theft.
Many people assume that they'll be covered for their business activities under their home insurance policy. However, the reality is that the majority of insurers will not cover your business if it's based at home because of the additional risks that present themselves in this context.
While the actual task of working from home isn't necessarily one of them, the introduction of stock, office equipment and potential injury to any visitors while at your home office will all put you at risk of your policy becoming invalid. So be sure to check your home insurance to see if it covers you for your business, and if not, take out specialist home business insurance before you begin trading.
Working away from home?
If your business isn't based at home, there are a couple of other insurance options that you will need to consider to ensure that your business is adequately covered.
Public liability insurance is perhaps the most important of these as just about every small business will need this cover, regardless of where they work.
This type of insurance provides cover against claims made by members of the public who have been injured or had their property damaged by your business (where the business being claimed against has been found legally liable for the damage or injury caused).
For example, if you're attending a trade event such as a summer fair or festival and a member of the public gets injured while visiting your stall, any compensation awarded as a result could be claimed from your business - not necessarily the organisation that arranged the event.
It may also be worth taking out professional indemnity insurance, depending on the nature of your business.
Professional indemnity insurance (also known as professional liability insurance) covers your business against claims made from clients or customers who feel that the professional advice that you've given them has been negligent or has caused reputational damage or financial loss to their business.
Although this cover isn't required for businesses that sell products, it's a crucial insurance product for architects, consultants, accountants and estate agents, where consultancy and design work play a crucial role.
Many potential clients, especially local authorities or large companies, will even ask you to provide proof of public liability insurance before they agree to work with you.
Do I need employers' liability insurance?
If you have employees, then you'll need to take out employers' liability insurance to ensure that they're covered while working for you.
Employer's liability insurance will provide cover against claims made by employees who have suffered an injury or illness during the course of their employment with you.
Having at least £5 million worth of employers' liability insurance is a legal requirement for all employing businesses. Any employers without this cover can be fined up to £2,500 a day.
You can even be fined up to £1,000 if your certificate of insurance isn't made readily available to your employees. So, make sure to display your proof of employer’s liability clearly. Or make it readily accessible to every employee.
Do I need office insurance?
Making sure that you have the right insurance in place for any office premises that you own is crucial.
If your office is hit by an unforeseen circumstance, such as a fire or flood, and you're not covered for it, the consequences could be devastating to your business.
Not only would you be without an office to work from (which could severely hamper your ability to trade), but you would also need to pay for any rebuilding or refurbishment work to the building from your own pocket.
By taking out an office insurance policy you'll be covered for any loss of income that has resulted from an unforeseen event such as a fire, flood, or theft. Many insurers will also provide buildings cover for offices as an optional extra which can be added onto your policy for an additional premium.
Responsible for office equipment?
Very few, if any businesses could function without the use of office equipment such as computers, printers, and photocopiers.
When arranging cover for your business, you'll need to make sure that all of your office equipment is insured against damage and theft.
Many companies that lease this type of office equipment out to other businesses often specify that the equipment being rented out needs to be insured in the lease agreement. So, you may need to get the right cover arranged, even if you don't yet have any office equipment to insure.
Both home business insurance and office insurance can provide this cover, but the type of cover that you'll need will depend on your working location.
Do you provide a service or a product?
Selling products online is becoming an increasingly popular choice for small businesses as platforms such as eBay, Amazon, and Etsy continue to expand.
But there are a range of risks that come with selling your products online, even if you do so through a trusted retailer.
So, if your business sells products using these channels or others like it, you need to make sure that the products being sold are adequately insured. This means making sure that you have cover for:
- Property damage or bodily injury caused by one of your products
- Physical loss of or damage to your products while in transit
- The products themselves while being stored on your business premises
Product liability insurance covers your business against any injury to members of the public, or damage to their property that has been caused by the products that you make or supply.
For example, you'll be covered for claims brought against your business as the result of a product that your business has sold, if it causes injury or damage to a customer's property.