In this chapter we consider the different types of business-related insurance there are and give information and guidance about:
- How you can find out what business insurance you need
- Public liability cover
- Professional indemnity (P.I.) cover
- Employers’ liability cover
- Protecting yourself from employers’ liability claims
- How insurance providers set premiums for business insurance policies
- Home-based businesses and insurance cover
- Business-related insurance for tradesmen
- Buildings insurance and commercial property insurance
- Business interruption insurance policies
- Where to find business-related insurance
- Reducing business insurance premiums
Insurance for a small business-owner – Protecting your livelihood
You might think that you have to be running a big business employing hundreds of people to worry about business-related insurance. This is completely untrue. Even if you work from home or are a sole trader, there are a number of types of insurance you should think about as soon as you set up your business since they can save you money in the long-term. Whatever job you do, mistakes and accidents happen so you should be prepared for them. How much worse it would be if they ended up costing you your livelihood.
Of course the types of insurance you need depend on the type of job you do. We begin with a consideration of the 3 most common specific business-related insurance regarding liability explaining what they are, who needs them, if they are compulsory and how much cover you need. We continue this guide by considering different professions who might need insurance: home-based workers, tradesmen and those with premises such as retailers. Finally, we give advice about where to find business-related policies and how to reduce the premiums you pay.
How do I know what business-related insurance I need?
This handy guide will give you a general overview of the types of insurance you might need but of course, it really depends on what type of job you do. The best place to start is with one of the professional or trade organisations of which you are a member. With their in-depth knowledge of the kinds of problems you could face or the challenges you could have in your chosen field, they’d be able to advise you on the best insurance policies to take out.
Alternatively, there are many sites which give tips to people about start-ups. They have financial advice covering everything from getting your initial funding to insurance for businesses. Go to the government-run site or to the site of the Association of British Insurers, which has a 75kB download specifically for business owners.
Let’s start by detailing the most common types of business-related insurance: public liability, professional indemnity and employers’ liability cover. For each one we’ll be explaining what they are, who needs each one, whether this insurance is mandatory by law and how much cover you should have.
What is public liability cover?
Public liability insurance covers you for claims made against you by members of the public for incidents that occur in connection with your business activities – whether that is actually on your business premises or off-site. Your provider will cover the bills for any legal fees and compensation in the event of personal injuries, loss of or damage to property and in extreme cases, death.
Who needs public liability cover?
You’d need public liability cover if members of the public or customers/clients visit your business premises for professional purposes, even if the business is run from your own home. You’d also need it if you organise off-site events which are attended by members of the public.
Is public liability cover compulsory?
Public liability cover is only compulsory for horse-riding schools. However, many companies and organisations insist that suppliers and contractors have this insurance before they will sign a contract with you. In this way, you’re adequately protected in case of an accident and you’re even covered if you weren’t personally to blame but it was the fault of one of your employees.
How much cover should I have?
Public liability tends to start from £1-£2 million and goes up to £10 million. The amount of cover depends on the nature of your business and the likelihood of an accident; this is something you should discuss with your insurance provider.
Your professional/trade association or sites for start-ups will be able to give you guidance on the best type of business-related insurance cover.
Public liability insurance covers you for any accident which occurs relating to your business activities and covers legal fees and compensation.
Public liability is only compulsory for riding schools but is often a contractual obligation.
The amount of public liability cover depends on your business but is usually £1-£10 million.
What is professional indemnity (PI) insurance?
Professional indemnity insurance protects your business if a client claims that there are problems with the work you’ve done for them or they have lost business/income because the project didn’t meet a deadline. Your policy will cover the costs of correcting the mistake, paying compensation as well as your legal defence costs (if necessary).
This type of insurance can cover a number of eventualities depending on the type of work you’re involved in but it includes negligence (because of bad advice or a careless mistake), infringement of intellectual property rights, defamation and breach of confidence. Some policies will also cover you for the loss of important documents or data.
Who needs professional indemnity insurance – Is it compulsory?
In most regulated professions (such as solicitors, chartered accountants and chartered surveyors) professional indemnity insurance is mandatory. For many other professions companies might demand this insurance of any contractors, consultants or freelancers who do contractual work for them. Professions as diverse as engineers and wedding planners often take out such a policy.
Questions on business insurance
A business is required by law in the UK to have employer’s liability cover, and this is the only business insurance that is mandatory. It is a legal requirement for any businesses that employ staff, even on a casual basis. However, regulators may require additional business insurance policies to be taken out for specific types of business operations.
Most small business only effectively require general liability and property insurance, which is a legal requirement for business that employ staff. If your small business operates with certain products and services, you may wish to take out additional insurance policies to cover for unforeseen circumstances.
As a self-employed individual, there is no mandatory insurance policy that needs to be taken out by law. However, public liability insurance can be a necessary cover for most business if people are visiting your office or premises, even if you are self-employed.
How much cover should I have?
Sometimes the amount of professional indemnity cover you should have is stipulated either by your profession or by your clients. If it isn’t, you should discuss the matter with your insurance provider taking into account the monetary value of the projects you do, the size of your clients and how much compensation could possibly be demanded of you because of a mistake. Depending on these factors, cover is usually around £2-£5 million.
Professional indemnity cover – Add-ons to cover
There are a number of other factors to consider when taking out professional indemnity cover.
The first is what type of P.I to have: annual aggregate P.I or ‘any one claim’ P.I. Annual aggregate imposes a limit on how much money the insurer will pay out in a year. ‘Any one claim’ has higher premiums since your insurance provider will pay any number of claims in a year in full. Think about the likelihood of having a claim brought against you by a client and when collecting quotes, make sure you’re comparing like with like.
One add-on to consider is whether to have ‘retroactive cover’ – this means work that you’ve already done since you started your business is included in the policy. It’s advisable to add this cover although your insurer will ask you to sign a declaration stating that you have no reason to believe that a claim will be made against you.
Run-off cover is another add-on you should bear in mind. Since the policy runs on a ‘claims-made’ basis, and not an ‘occurrence’ basis, run-off cover means you’re still protected after the policy has expired.
How much is paid out in public liability claims?
According to the ABI, £7.2 million is paid out every day for public liability insurance.
What is ‘D & O’ insurance?
‘D & O’ insurance refers to Directors’ & Officers’ insurance and it covers the legal liabilities of directors of limited companies; the insurance would pay the legal costs if they get something wrong.
What is product liability cover?
If you make, repair or sell products to the public, product liability cover pays compensation and/or legal costs if they cause injury or damage because of defects. High risk industries for product liability tend to be those concerned with food or drink, toys or electrical products.
What is trade credit insurance?
Trade credit insurance covers you when you haven’t been paid by customers or clients because of delays or insolvency. An insurance provider won’t carry all the risk but would expect you to shoulder at least 20% of any claim.
How many claims are there for trade credit insurance?
In 2015 there were 11,000 claims for trade credit insurance and £149 million was paid out. According to the ABI, this was a 19% increase on the previous year.
What is Employers’ Liability Cover?
As an employer, the health and safety of your employees are your responsibility. This cover enables you to cover the costs of compensation and legal fees if an employee falls ill or is injured during the course of their work.
In 2016 there were 1.3 million work-related illnesses and 144 fatalities in the workplace.
According to government statistics, in 2016 there were 1.3 million work-related illnesses and 144 fatalities in the workplace so don’t think that it might not happen to you.
Who needs Employers’ Liability Cover?
As soon as you take on an employee, then you are legally obliged to have employers’ liability cover even if they are only temps or seasonal workers. The only exemption is if you are a sole trader or only employ close family members.
Is Employers’ Liability Cover compulsory?
Under the Employers’ Liability (Compulsory Insurance) Act of 1969, this insurance is compulsory. Not only is there a fine of £1,000 if the insurance certificate isn’t displayed for all the staff to see but employers can be fined up to £2,500 per day for not carrying this insurance cover (which can also be backdated).
How much Cover should I have?
The minimum cover by law for employers is £5 million although many insurers include £10 million automatically as standard cover.
Professional indemnity insurance protects you if you make a mistake in your work.
It is mandatory for some regulated professions and often a contractual obligation for freelancers.
P.I insurance usually has cover of £2-£5 million but there are also 2 types and add-ons to consider.
Employers’ liability insurance pays for compensation and/or legal fees if an employee falls ill or has an injury at work.
You must have employers’ liability insurance even if you only hire temps but it isn’t necessary for family members.
Protecting yourself – Tips for employers’ liability cover
There are 2 things to bear in mind when it comes to employers’ liability cover. The first is that prevention is always better than cure so it’s a good idea to think carefully about your workers’ health and safety. You should carry out regular risk assessments and make sure that all employees adhere to any industry regulations regarding the wearing of personal protection equipment.
The other thing to remember is that some illnesses or health conditions take a while to develop so you should always keep the certificates of expired insurance policies. It could be that a former employee will make a claim years after they left your employ and in this way, you’ll have proof of cover.
Setting premiums for work-related insurance policies
When setting premiums for public liability cover, professional indemnity cover and employers’ liability cover, there are a number of factors which your insurance provider will take into consideration.
First of all, they will look at your business: its size, location, its turnover, how long you’ve been in business and the number of employees you have. Insurers will also take into account the type of work you do and how risky it’s considered to be. For example, working at heights or in a high-temperature environment will cause your premiums to increase. Your exposure to the public will also be considered: how often they visit your premises and so on.
To reach a figure for your premiums, your insurance provider will also analyse your health and safety record and your insurance history. For instance, have any claims been made against you in the past?
All of these factors will help your insurance company calculate how big a risk your business will be and the probability of a claim being made which would cost them money.
Home-based businesses and insurance
If you work from home, do you really need any insurance? If your only equipment for your business is a computer or a laptop, then in the majority of cases this can be covered by your home contents insurance policy. However, this is only true if your insurance provider is informed of the fact beforehand. Otherwise, any claims can be declared invalid.
If your work is mainly computer-based, there are also specialist policies to protect you against IT breakdown as well as to compensate you in cases of damage caused by cyber-threats like viruses and hackers.
If, on the other hand, your work from home requires more specialised equipment, then you’ll need extra insurance cover for theft or damage by things like fire or water. Policies can be either the cost of replacing the equipment (which is more expensive) or could be for its current value (taking wear and tear into consideration).
If any clients/customers visit you at home or you go to their premises to discuss contractual or freelance work, then you should take out public liability cover. The nature of your work might require you to have professional indemnity cover as well.
Employers’ liability cover is compulsory and often policies have a standard £10 million limit.
Always follow health and safety regulations to reduce claims against you and always keep copies of expired insurance cover in case someone makes a claim for work-related illnesses or injuries months – or even years – later.
Insurers look at your business and your safety record in order to set your business-related insurance premiums.
Depending on the nature of your home-based business, different types of insurance might be necessary.
Who do most work-related injuries affect?
According to government statistics, limb and back injuries make up 41% of all occupational ill-health cases and there were 8.8 million working days lost in 2015 for such injuries. They tend to affect people who work in construction, agriculture and healthcare.
Why are there so many public liability cases?
Whether some claims for personal injury are frivolous is open to debate. However, with law firms offering ‘no win, no fees’ representation, it’s never been easier to sue a business for personal injury.
How does the ‘no win, no fees’ representation work?
In cases of personal injury, any compensation is divided between the claimant and the law firm on the lines of a 75%-25% split (though the law firm’s share of their ‘success fees’ can vary). If the case does go to court and the claimant loses, there are no fees at all.
What is ‘Goods in transit’ insurance?
‘Goods in transit’ insurance covers you in case deliveries to your customers or clients are delayed, lost, stolen or damaged.
‘Goods in transit’ insurance covers you in case deliveries to your customers or clients are delayed, lost, stolen or damaged. A standard policy covers you for road and rail transport although it can be extended to cover coastal waters too.
What motor vehicle insurance should I have for my business?
If your business depends on the vehicle, then you should have a policy which allows you a replacement while it’s being repaired so you don’t lose work. If your employees drive the vehicle, you should have at least third party insurance but preferably fully comprehensive. It’s a fact that people make more claims for a business vehicle than a private one, possibly because employees don’t take the same care as they would with their own vehicle.
Business-related insurance for tradesmen
Whatever kind of tradesmen you are, if your job requires you to visit customers’ homes or businesses to carry out repairs then you should have public liability cover. This will protect you in cases of claims for damage to property or personal injuries.
Employers’ liability cover will also be necessary even if you only take on an apprentice. Personal accident cover is imperative if you’re self-employed since it will cover your living and medical expenses if an injury or accident prevents you from working. Most insurers offer specialised policies for the self-employed in one ‘package’.
Finally, the tools of your trade (including your vehicle) should be fully insured, either to be replaced or allowing for wear and tear. When taking out a policy, check the conditions of where they should be stored and how this will affect your premiums.
Buildings insurance and commercial property insurance
Whether to take out buildings insurance depends on whether you own the building. If you’ve borrowed money from the bank to buy the premises, buildings insurance is often a condition of your mortgage. However, if you rent the property, then this type of insurance is the responsibility of your landlord.
In the same way that you have home contents insurance, you really should have commercial property insurance if you have business premises. Think about all the equipment and/or stock in your place of business; would you really be able to afford to replace them all in case of a disaster without the business going under? Insurance is the solution for this just-in-case scenario and don’t think it couldn’t happen to you. According to government statistics, 1 in 5 small to medium-sized businesses suffer a major disruption and 80% close down within 18 months because of it. Commercial premises insurance will provide cover for the equipment, the basic fittings and fixtures as well as all the lost or damaged stock in case of theft, a fire, storm, flooding and even terrorist attack.
Business interruption insurance policies
Business interruption insurance can be added as an optional extra to a commercial property policy and protect you from any (pre-tax) loss in earnings while repair and reconstruction work is going on and also cover any increased costs in running the business. It can also cover business and money lost because of the breakdown of an essential piece of equipment. In this way, you’ll be able to weather the crisis and be left in the same trading position as you were before disaster struck.
Some business interruption policies will also cover you for possible financial loss due to customers not being able to get to your business premises. The same policy can also cover any possible consequences for your business if the damage occurred at the premises of a supplier or customer.
Tradesmen should have public liability insurance, personal accident cover, insurance for the tools of the trade and employers’ liability cover if they have workers or an apprentice.
Buildings insurance for commercial properties is the responsibility of the landlord unless you own the building.
Commercial property insurance will cover you for loss or damage to equipment and stock because of a disaster.
Business interruption policies are an optional extra and can compensate you for financial loss because an unexpected event causes temporary closure of the business or restricts trading.
Looking for business-related insurance
Like any type of insurance, you could start your search with an online price comparison site as long as you recognise their limitations. Make sure that you are comparing like with like. For example, how much is the cover for professional indemnity? Policies can start as low as £50,000 but will this be enough for you if you need to rectify a professional error or will it cover possible legal fees if you face a lawsuit?
Other places to look are the trade/professional body for your job since they often offer reasonable insurance cover. One of the main advantages is that you might be entitled to a discount if you are a member of the association/federation. The other benefit is that they are colleagues with years of professional experience in the field and so they know at first-hand how much cover you’d need and what exactly. They’re less likely to take advantage of your inexperience to encourage you to pay for unnecessary add-ons.
The trade or professional body for your job often offers a reasonable insurance cover. As a member, you may be entitled to a discount.
Alternatively, the fact that business insurance is much more complex than simply taking out a policy for your home or car means you may wish to use a broker. The British Insurance Brokers’ Association have a ‘Find a broker’ service, which can help you find one who specialises in business-related insurance cover.
Reducing your business insurance premiums
Throughout the whole of this guide on insurance, we’ve seen how the size of your excess (your financial contribution to any claim) can affect how much you pay for your insurance premiums. Whether it’s for a car or home, increasing your voluntary excess leads to lower premiums. This is less true for business-related insurance. Excess for these policies tends to be £250-£500 and so it’s the only time when they don’t play such a major role in your decision-making process. After all, if you’re facing possibly thousands of pounds in possible compensation and legal fees, a couple of pounds extra for excess seems small fry in comparison if you feel the policy offers you exactly what you need.
Most insurance providers offer business-related policies and with their years of experience can give you guidance about the best ‘bundle’. They might have a core policy, to which you can add trade-specific cover depending on your line of business. Often you’re entitled to a discount if you take out all the policies from the same insurance provider. The other advantage of having your policies with the same insurer is that it’s much easier to renew policies and less hassle for you to deal with one company if you need to make a claim Also, if there are claims which overlap such as commercial property and trade interruption insurance policies, then one assessor will deal with it all.
What is infidelity insurance?
Infidelity insurance (sometimes known as dishonest employee insurance) covers you for possible losses because of dishonesty on the part of your employees whether this is pilfering or stealing from the till. Some insurers might also investigate how it was done and estimate how much was lost.
Who needs fidelity insurance?
You’d only really need fidelity insurance if you have so many employees that it makes it difficult to personally supervise their activities.
Who is responsible for checking whether an employer has employers’ liability cover?
This is the responsibility of the Health & Safety Executive (HSE). They can also give valuable advice on training your employees regarding health and safety issues to reduce the number of work-related accidents and injuries.
What is ‘Key Person’ insurance?
Up to an agreed limit, Key Person insurance covers you for the sudden death or illness of a crucial person in the company whether this is the owner or a valued project manager, etc.