Why is insurance important to a business? | moneyfacts.co.uk

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Michelle Monck

Michelle Monck

Consumer Finance Expert
Published: 27/11/2020

At a glance

  • Business insurance is a way to financially protect your business should something unfortunate happen.
  • It usually incorporates a package of different products (such as public and employers’ liability, indemnity, business interruption and contents insurance) to cover every facet of your company.
  • As with personal insurance, various levels of cover are available and there are plenty of specialist providers who can offer different quotes, which makes comparing business insurance options vital. 

 

How does business insurance work?

Business insurance is a way to protect your business when something unfortunate happens, protecting you against any losses incurred through the running of your company. It usually incorporates a package of different products that are designed to protect you, your business and your liabilities, while satisfying your legal requirements as a business owner, with each insurance product covering a slightly different aspect. Here we take a closer look at the products available and how a comprehensive business insurance package can work for you.

What are the different types of business insurance in the UK?

There are several different types of business insurance to consider; below is an overview of some of the most common, all of which are designed to protect your business against some of the unique risks it faces.
 

Business Insurance Providers

    • Cover that grows with you – no admin fees for changes to your policy
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    • Hiscox offers professional indemnity cover up to £10 million for legal expenses
    • 0% interest when you pay monthly by direct debit
    • Our UK-based insurance experts will take the time to understand your situation and guide you through your options to ensure you get the right cover
    • Our award-winning claims team includes legal and PR experts, who can help even before a claim actually happens
    • We have over 100 years of experience and insure over 300,000 UK small businesses like yours
    • Insurance for SME’s such as retailers, offices, trades
    • Compare quotes from some of the UK’s most trusted insurers
    • It’s simple to get quotes and protect your business online
    • Speak to one of our expert advisors to tailor cover & provide guidance
    • Excellent customer service rating
  • Axa
    • Pay for the insurance you need, not the bits you don't
    • We protect over 600,000 businesses in the UK
    • We pay out on 99.3% of business insurance claims*
    • UK-based contact centre to guide you every step of the way
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Disclaimer

The list of business insurance providers on this page is a selection of services available and gives you an idea of the kind of options available. You can find out more about the individual products by visiting any of the providers listed. All information is subject to change without notice. Please check all terms before making any decisions. This information is intended solely to provide guidance and is not financial advice. Moneyfacts.co.uk will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts.co.uk recommends you obtain independent financial advice.

Employers' liability insurance

If your business has employees, it is your responsibility – as an employer – to protect the health, safety and wellbeing of your staff. Employers’ liability insurance is there to help ensure that your financial commitments to your employees are maintained should an accident happen, while complying with legislative requirements.
It’s designed to protect you against any claims for compensation following an injury or illness suffered by an employee if your company is found to be at fault. It will also cover any legal costs if your insurance company chooses to defend your company’s position, as well as the costs and expenses incurred by the employee should you be found legally liable.

Public liability insurance 

It isn’t just the health of your employees you need to consider, however. Any visitor to your business premises, whether they are an electrician, a courier, a customer or a member of the general public, can make a claim against you if they are injured or their property is damaged as a result of your business activities.
It’s the responsibility of the business owner to make sure that any claim for compensation from a third party is met, and business public liability insurance can ensure you’re able to meet your financial obligations. The compensation amount could include loss of earnings, future loss of earnings, damages awarded to a claimant and any legal expenses that you could incur if you are found to be liable (up to certain limits), the costs of which can quickly escalate – so the amount you’ll need to insure against could be significant. 
Even if you don’t have an office or premises as such, if your business involves work on-site or at a third party’s premises, you will also need to consider business public liability insurance.

Product liability insurance

This is designed to cover any products you produce, sell or repair, as regrettably, things sometimes go wrong once they leave the warehouse. Product liability insurance can cover you for legal and compensation costs resulting from injury to people or damage to their property if the product is later deemed to be defective, protecting your business from the financial impact of a claim.

Business contents insurance

Business contents insurance works much like contents insurance for your home. The likelihood is that your business relies on computers, equipment, tools and machinery to ensure it runs smoothly; contents cover is there to reinstate your items should they be damaged, lost or stolen as a result of an insured event, essentially protecting the physical components of your business. 
This type of insurance isn’t compulsory, but it’s important to consider how you’d replace all of your belongings if the worst happened; chances are, it would have a negative impact on your firm’s finances. It’s also worth considering your fixtures and fittings and any stock you hold when thinking about your insurance requirements and factoring the costs in accordingly (stock insurance can be another distinct type of cover).

Business interruption insurance

This type of insurance is designed to protect your finances should you fall victim to an unforeseen event (such as flooding, fire and theft) and you’re unable to trade for a temporary period. Business interruption insurance can cover you for loss of income suffered while you deal with the aftermath of such an event and, providing that your sum insured is adequate, it can even take into account any growth in income that might have happened had the disaster not occurred.

Professional indemnity insurance

This is a type of business insurance designed to cover claims relating to professional mistakes, making it a core part of any business that provides advice in a professional capacity. Offering this kind of advice always comes with risk, as things don’t always go to plan; professional indemnity insurance is therefore designed to protect your business in the event that a client suffers financial losses as a result of the work you do for them or the advice you gave, as without it, you could be held personally liable to rectify the damage. 

Key man insurance

If you’ve got a few vital employees whose loss could be financially damaging to your business, you may want to invest in key man insurance. This type of insurance essentially covers the people who keep your business going, and if they can’t work, you’ll be compensated for that loss. 

Credit risk insurance

A specialist type of insurance designed to protect your business should it fall foul of a bad debt. It covers credit transactions so that if the customer failed to pay, the insurer would foot most of the bill, helping to protect your cash flow and mitigate credit risk. 

Cyber liability insurance

This type of insurance is becoming increasingly important in today’s digital world. As technology continues to evolve, businesses are becoming more vulnerable to online threats and data breaches, and even businesses with the most stringent cybersecurity measures in place are not 100% safe. The vast majority of businesses will hold some form of personal data about their customers, suppliers or employees, and potential exposure of that data could be hugely damaging; cyber and data insurance can help to protect and support you if you fall victim to cybercrime, providing you with crucial support if your IT infrastructure and data is compromised.

Business legal protection insurance 

Business legal protection insurance – also known as business legal expenses insurance – will cover your commercial legal expenses and provide valuable protection against the cost of any legal action levelled at (or brought by) your business, and considering the potentially high cost of any claim, it’s worth considering.

Business car insurance

It’s a legal requirement for any car on the road to be insured, and if you use a car for business purposes, you’ll need specialist business car insurance. This type of cover will protect you should you have an accident when driving between work locations or different clients, for example, and you’ll be unable to make a claim – and could even be committing an offence – if you don’t have specialist cover in place. Bear in mind that, if your job involves you directly using your car (such as taxi drivers or driving instructors), you’ll need commercial rather than business car insurance. Business van insurance is another option for those that use a van in the course of their business activities, and it operates under the same principles. 

 

Small business insurance 

Many of the business insurances discussed so far are often used in large companies, but what if you run a small business – do you still need insurance? The answer is a resounding yes, but the type of insurance you’ll need, and the level of cover required, will likely be very different. 

 

Which business insurance do I need for a small business?

This depends on how many employees you have, if any. If you have anyone else working for you, then employers’ liability insurance is a must, and after that you’re free to choose which additions you want depending on your circumstances and business interests.

How much is small business insurance per month?

This depends on the type of policy you choose. Employers’ liability insurance can cost as little as £5 a month for the smallest employers, and public liability insurance can start from around £40 a year for small businesses and sole traders. The more cover you add on, the higher the cost will be, but this should never be seen as an excuse to cut corners. 

Landlords insurance

There’s a specialist kind of business insurance reserved for landlords, which can provide cover for your rental property – including the building itself and any furnishings within it – as well as your income. Landlords insurance can incorporate things like buildings and contents cover, accidental and malicious damage cover, alternative accommodation and unoccupied property cover, and even property owners’ liability if your tenants are injured on your property and you’re deemed at fault. It can also protect you from lost rent if your tenants have to move out because of an insurable event (fire or flood, for example), and if you’re a commercial landlord you can often find policies that will cover multiple properties. 
Landlord insurance isn’t a legal requirement, but it’s often highly recommended to get such a policy – and it may even be part of buy-to-let mortgage criteria, including first-time landlord mortgages and buy-to-let limited company mortgages. And, as with any kind of business insurance, it can offer peace of mind that your financial interests are protected, no matter what comes around the corner.

 

When is business insurance required?

Business insurance is required by anyone who owns or runs a business, but you’ll only need to use it should an insurable event occur – which, ideally, will never happen. The only caveat to this is if you’re a sole trader and are happy to run the gauntlet of business risk alone – there’s no legal requirement for any kind of insurance unless you employ people or drive for business purposes, but even here, it’s worth considering what kind of protection you could benefit from. 

 

What business insurance do I need?

This will depend on your circumstances and type of business. If you employ staff members then you’ll need employers’ liability insurance as standard, and from there you’ll need to consider the cost of your business equipment (for business contents cover) as well as things like business interruption cover and public liability, and professional indemnity insurance should always be considered if you offer some form of advice as part of your service.

What business insurance do I need?

This will depend on your circumstances and type of business. If you employ staff members then you’ll need employers’ liability insurance as standard, and from there you’ll need to consider the cost of your business equipmentDo I need business insurance if I run a home-based business?

If you’re the only worker, then technically you don’t need any home business insurance – but it could make sound business sense nonetheless. For starters, you’ll want to check your home insurance policy to see if your business equipment will be covered (and if not, make sure to seek specialist quotes), and from there you may want to consider things like professional indemnity insurance and business interruption insurance too.
(for business contents cover) as well as things like business interruption cover and public liability, and professional indemnity insurance should always be considered if you offer some form of advice as part of your service.

Business insurance FAQs

How much business insurance cover do I need?

The amount of cover you’ll need can vary depending on your circumstances and the type of policy you have, with things like public liability and professional indemnity insurance offering cover that can run into the millions. In these examples it’s never worthwhile to under-insure – claims can easily escalate, so it makes sense to have sufficient cover in place – while for things like business contents insurance, make sure to value your assets accurately and seek the right amount of cover accordingly.

What cover is available under business insurance?

The cover available depends on the type of business insurance that you opt for. Business interruption insurance, for example, can protect your income in the event you’re unable to work due to things like fire or flooding, while business contents insurance will protect your assets from the same risks. It’s important to look closely at what’s available with each insurance policy, taking care to understand any exclusions, and try not to skimp on cover if you want to be sure you’re adequately protected.

How much is business insurance for a car?

Business insurance for a car will be more expensive than if you use your car solely for personal use, but given that you won’t be able to make a claim without specialist cover, it’s essential to invest. As a general rule, it will add a minimum of £20 to £50 on top of a standard car insurance premium, but as with any type of insurance, the amount you’ll pay will depend on your individual circumstances and the level of cover you opt for, which is why it’s so important to compare the options thoroughly.

What business insurance is required by law?

If you have employees, you’re legally required to have employers’ liability insurance. Likewise, if you use your car for business purposes or own several vehicles in relation to your business, specialist cover is required by law. Everything else is optional (unless you run a specific type of business, such as a horse riding company, where public liability cover is a legal requirement), but it’s worth considering additional kinds of protection nonetheless.

Will business insurance cover Covid?

There are very few insurance policies that will cover the Covid-19 outbreak. Even those that cover business interruption will unlikely have infectious disease cover, and those that do will typically only be covered for certain listed diseases – and Covid-19, given its very recent discovery, won’t be one of them. That said, there are certain aspects of business insurance that will cover the consequences of Covid-19: liability cover will continue to apply for those businesses who have furloughed and home-working staff, for example, business contents cover can be extended to ensure it covers equipment outside the office, and businesses that have unoccupancy conditions will usually be able to extend the allowable unoccupied period. It’s important to discuss any issues with your insurance provider if you’re concerned.

Can I run a business without insurance?

No. Many of these insurance products are legally required, and while this doesn’t necessarily include everything that might be included in a fully comprehensive business insurance package (professional indemnity, contents and cyber insurance, for example, aren’t legally required), it could be financially detrimental to run your business without it. By investing in suitable protection, not only will your business interests be covered, but having insurance to protect you financially against accidents, mistakes, theft, damage and legal fees can provide valuable peace of mind, so for that reason alone should always be considered.

The value of business insurance

Insurance is an intangible benefit to your business – a service that you have paid for that you may never get to use, but also a service that you hope you will never need to call on. But why wouldn’t you want to fully protect your livelihood, the business you’ve worked so hard to build? Whether it’s theft, fire, a cyberattack or staff injury, incidents in the workplace can be costly and knock you off schedule.

This is why the value of business insurance should never be underestimated, and if you’re looking for a policy (or policies) that can meet your needs, make sure to compare business insurance options to find the best quote, or speak to a business insurance broker who’ll be able to find the best policy for your company.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

person writing in notebook with two laptops open

At a glance

  • Business insurance is a way to financially protect your business should something unfortunate happen.
  • It usually incorporates a package of different products (such as public and employers’ liability, indemnity, business interruption and contents insurance) to cover every facet of your company.
  • As with personal insurance, various levels of cover are available and there are plenty of specialist providers who can offer different quotes, which makes comparing business insurance options vital. 

 

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