Business insurance is a general term which encompasses a wide range of different insurances which a business may hold for a wide range of protection. It’s important to the efficient running and protection of operating businesses but can often be overlooked. Here is our guide to business insurance and how it would benefit your business.
Why is Insurance Important?
Business insurance is an important aspect in securing not only your business investments but also employees and customers, it offers protection to a business in the case of unexpected events where people may be hurt, property may be damaged, or revenue may be lost. Ultimately, the different insurance types cover different scenarios which may occur when operating a business and offers some protection.
The Different Types of Insurance
Public Liability Insurance
This insurance helps to cover the legal costs and compensation which may be necessary should a business be held responsible for injury or property damage to a client or member of the public.
Is Public Liability Insurance Compulsory?
There is no legal requirement for a business to have public liability insurance, but it offers businesses a safeguard should a mishap happen. Most businesses do take out this type of insurance as a precaution.
What does Public Liability Insurance Cover?
This insurance could cover things such as:
- Compensation Claims
- Legal Expenses
- Cost of Repairs
- Medical Fees
Employers’ Liability Insurance
Should an employee be injured at work or become ill because of their work, this type of insurance covers the cost of the necessary compensation to any claimants and their legal fees. This policy should cover all types of employees within the business, including temporary staff such as students or work placements and volunteers, whereas should your employees work aboard you are not legally required to have Employers’ Liability Insurance. However, with employees abroad you must abide by the other country’s legal insurance requirements.
This is the one of the only insurance types that is legally required and is only required if the business has employees. The regulation states that the insurance must cover at least £5 million however most policies offer at least £10 million.
Does Every Business Need Employers’ Liability Insurance?
No. Most businesses are required by law to have this insurance but there are a few who are exempt. Some of the businesses that are exempt are:
- Public organisations, such as government departments and local authorities.
- Health service bodies, such as NHS trusts.
- Some organisations which who are financed through public funds.
- Family businesses where all the employees are closely related to the business owner.
- Companies who employ only their owner where that employee also owns 50% or more of issued share capital.
Do Employees Need to know that a Business has Employers’ Liability Insurance?
When a policy is active, a certificate will be issued which states the minimum level of cover provided. Legally you must display a copy of the certificate of insurance where all employees can easily read it. As of 2008, a business can display the certificate electronically; however the employees must be knowledgeable on how to access it and must have the availability to access it.
What Happens if You Don’t Have Employers’ Liability Insurance?
A business can be fined up to £2500 for every day where suitable insurance is not active and should the active certificate not be available to a HSE inspector when they ask; a business could be fined up to £1000.
Product Liability Insurance
Should someone become injured, or a property be damaged by fault of a product sold by a business, product liability insurance helps to cover the costs of compensation and legal claims should the customer make a claim. This insurance is important for all businesses as even if a seller hasn’t manufactured a product, they may still be liable for the claim.
Is Product Liability Insurance Required by Law?
No. This type of insurance is not a legal requirement, but it is strongly advised that a business carries it to offer some protection in the case of a lawsuit. Furthermore, certain manufactures, retailers and suppliers might require that you have it to do business with them.
Who would be Liable if a Product Was to Cause Harm?
Under the Consumer Protection Act, the manufacturer, distributor, suppliers, and retailers can be held responsible for any damage that might occur from a product or any of its products. However, the liable party is often held responsible on a case-by-case scenario and due to the specifics of an individual case.
How Much Product Liability Insurance Do I Need?
This will depend on the type of product sold, the risk factors involved and the average annual turnover for the business. In most cases, you would not buy each insurance type separately but as a package, so it is suggested that a suitable package if found based on the factors of income, type of product, type of business and risk factors.
Professional Indemnity Insurance
This type of insurance is for the type of businesses that offers knowledge, skills or advice and therefore could potentially lead to a customers’ or client’s loss of sales or damaged reputation. This insurance type helps to cover any potential legal fees and claims.
Do I Need Professional Indemnity Insurance?
Businesses that give advice, offer a professional service or handle data and intellectual data are recommended to have some form of this insurance. Accountants, consultants, and recruiters are just some of the businesses that would benefit strongly from having professional indemnity insurance.
What does Professional Indemnity Insurance Cover?
- Personal Negligence
- Breach of Copyright
- Lost or Damaged Documents
- Breach of Confidence
- Employee Cover
How much Insurance Would I Need?
When considering Professional Indemnity Insurance factors such as contracts, project value and regulating bodies are important to determine how much you would need.
Content insurance is so that should items become damaged or stolen through burglary or events such as a fire, a business could claim back the value of the items. This insurance helps to ensure that any investment made in terms of stock, equipment or electrical devices is protected when faced with unforeseen events.
What Events Would Content Insurance Cover?
Content insurance may cover events such as:
- Violent damage
Business Interruption Insurance
This insurance is to help cover loss of profit or sales should a business not be able operate due to circumstances such as floods, fire, or extreme weather.
What Cover Does Business Interruption Insurance Offer?
This type of insurance almost always includes what is known as Material Damage Proviso. Its purpose is to ensure that all necessary building repairs or replacements are paid for so the business can resume trade alongside kicking in when a claim is made against a building or contents insurance policy. This means that issues such as lost revenue, additional staff costs and all other financial losses that are a direct result from business interruption are covered.
Do You Need Business Interruption Insurance?
The necessity of this insurance is determined on the impact an event would have on a business. The factors that are important to consider are whether the trade of the business could carry on should an event like a fire happen and whether there is the option to resume trade at the same level after months of business being unfunctional. Ultimately this insurance is always recommended for protection.
This insurance policy offers a protection should a business become victim to a cyber attack or scam. This insurance is important should a business deal significantly online or deal with sensitive information.
Choosing the Right Insurance Policy
A business holding the correct insurance policy means that they hold some protection should unfortunate situations arrive, however it can be difficult to choose the right one. Here are our top tips for choosing the right insurance policy.
1. Do Extensive Research
It is always best practice to research and decide what is needed for your business before committing to a policy. Most policies will include different insurance types to create a tailored business insurance that will fit your situation best.
2. Carry Out a Risk Assessment
You must carry out a risk assessment for a business but carrying out one that details the risks that might be posed to your business will help to determine what insurance covers you need.
3. Keep the Future in Mind
The only legally required insurance for a business is Employers’ Liability, but as mentioned before most insurance policies will incorporate different insurances in one policy. Some insurance agencies work the cost of the policy for each individual employee which may work at the time of the policy starting but may make it difficult should you look to expand the business. Knowing the long-term goals of the business can help to choose the right policy that will grow with the business.
4. Understand How Quotes are Calculated
Different industries pose different risks and therefore these risks can be considered when an insurance provider calculates the cost of a policy. It is recommended that you understand what is considered when calculating a policy and whether size of the company, number of employees, industry and risk factor are considered. This is important as it will also allow for future business plans to be considered.
5. Don’t Make Assumptions About What is Covered
What is required in business insurance would be determined by the industry, business type and risk factors, therefore not all policies are the same. It would be a mistake to assume that something would be included without evidence, as it could mean that you are left unprotected in an emergency. Consider the risks that are present to your business and read the policy terms and conditions to better understand what protections you are offered.
6. Read the Requirements of the Insurance Policy
When you are looking into an insurance policy, a thing to consider is what requirements a business would have to keep the insurance policy valid. For example, some insurance policies would require a certain level of security, for example British Standard locks, for a policy to be valid and for theft to be covered under the insurance.
7. Don’t Cheap Out on Your Policy
Getting a lower cost policy might seem like a good idea when starting a business but this might not always be the best option for the business. Fully understanding what the risks are for your business and being protected against them is the best option in the long run and ensures that your business is secured. We always recommend that you find an insurance policy right for your business which offers the highest limits you can afford.
8. Consider your Deductible
It might seem that choosing a higher deductible will save the on the cost of the insurance policy however it is important to consider that this will be the amount of money you will have to contribute should you make a claim. Therefore, consider how much you would want to pay should an unfortunate situation occur.
9. Insurance Reputation
Apart from the policy it is important to consider the reputation of the insurance provider. The reputation helps to better understand how they handle their customers, the quality of their customer services, the handling of claims.
10. Claim Handling
Should the worst happen, you would want your insurance to cover the necessary costs. However, some insurance policy providers may handle claims more efficiently than others; likewise different policies might have different requirements of evidence to make a claim. Understanding the procedures for claim handling will allow for an idea for how your claim might be handled.
Business Insurance FAQs
Is Insurance Required by Law?
It is a legal requirement that all businesses have Employers’ Liability Insurance if a business has employees and that should the business use motor vehicles, they must have at the very least Third-Party Motor Insurance.
Who Can Sell Business Insurance?
Only authorised insurers can offer business insurance. Authorised insurers are individuals, companies and organisations who work under the terms of the Financial services and Markets Act 2000. The Financial Services Authority (FSA) keeps a register of approved insurers, and therefore should be referred when choosing a policy.
Do I Need Business Insurance if I Work from Home?
Unless you have employees, you do not need to have any form of business insurance. However, it is suggested that should you have clients come to your home, such as for hairdressing services it would be wise to have public liability insurance.
Do I Need Business Insurance if I’m Self-Employed?
No, you do not. However, if you deal with the public or with customer data, policies such as public liability and professional indemnity would be a smart investment to ensure your business is covered.