The Ultimate Guide to Business Insurance
- July 26, 2018
- Business Insurance
- by Chris
A business insurance policy will protect you during normal business activities for losses such as compensation claims made against you. Generally this cover will include public liability insurance, employers’ liability insurance, and professional indemnity insurance. The following guide covers various aspects of business insurance, to ensure you have the right knowledge before taking out a new policy.
Is business insurance necessary?
Business insurance will protect you against everyday associated risks that come with the nature of operating your business. Insurance will be able to cover you against accidents, damage, theft, mistakes and legal fees, but the type of cover you require will depend on how your business operates and what type of business it is. If you work from home, you may also require business insurance. Your particular business will determine the type of insurance you need.
You should consider public liability insurance if you have clients visit your property, this will cover you against anyone suffering an injury whilst they visit. Professional indemnity insurance will be important if you’re offering a professional service, advice, handling intellectual property (IP) and/or client/customer data. Online businesses have their own challenges and risks, again, you will require insurance that will meet these unique needs. Stock cover will protect your inventory against damage and theft for things you sell online. Tool insurance is similar, this will also cover you against damage and theft for your specialist business tools. Professional indemnity insurance will protect you against a financial loss suffered by one of your clients due to your online service. As a sole trader, you may need tradesman insurance but employers’ liability insurance may not be needed.
Is It a legal requirement to have business insurance?
Your specific business will allow you to understand if you are legally required to have a business insurance policy. For most businesses that have staff, employers’ liability insurance will be a legal requirement. Professional indemnity insurance may be a legal requirement to satisfy regulatory and governing bodies.
UK Law Business Insurance requirements
Employers’ liability insurance is the only legal requirement under UK law for most business that employ staff, whether it be on a permanent or casual basis. In order to operate, you may find that some regulators require you to have other specific types of insurance. Accountants, some health care professionals, and solicitors are required by law to have professional indemnity insurance in place. In some instances, you may not be able to sign some contracts without having the necessary insurance in place beforehand. Before you take on any work, check to see if any of your new or existing clients require you to have a specific insurance policy and make sure you have that business cover in place. It’s a good idea to take out a policy regardless if it is a compulsory requirement or not for your business. Business insurance can cover you against accidents, damage, theft, mistakes and even legal fees. This will keep your business running in the event of any unforeseen circumstances.
Types of business insurance
The type of business insurance you will need depends on the nature of your business. Professional indemnity insurance covers your business if you are offering advice, employers’ liability insurance is a legal requirement for most business with staff employed permanently or casually, public liability insurance will cover you if you are interacting with members of the public.
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What insurance do I need for my business?
Consider the type of work you carry out and any risks associated with it, what will you need to be covered for? An upset client may feel you’ve been negligent and may pursue a compensation claim. There may be a chance that a member of the public could have an accidental injury by your business and may also want to make a compensation claim. Do you need to insure your buildings, business equipment, contents, or stock? Here’s a list of popular types of business insurance and why you may need to be covered with them.
Public liability insurance
If your business is in contact with the public, public liability insurance is a very important consideration. It can protect you against injury or damage compensation claims made by clients, customers or suppliers, whether at your business premises or elsewhere. Most builders, tradesmen, hairdressers, shops, and restaurants will look to take out this type of insurance. Look at your client contracts to make sure what level of public liability insurance will be required.
Professional indemnity insurance
If your business offers advice or a professional service to other clients or businesses, professional indemnity insurance can be very important. This can also cover you when dealing with intellectual property (IP) and/or client data. Professional indemnity insurance can cover you against compensation and legal costs, if a client is at a loss and makes a claim against you through mistakes made in your work. Accountants, architects, and surveyors will want their members to have this in place, check to see which regulators and professional bodies require this.
Employers’ liability insurance
You will likely be required to have employers’ liability insurance if your business employs staff both permanently and on a casual basis. This can cover you if a member of staff suffers an injury, illness or damage due to their work and pursues a compensation claim against you. Some businesses that only employ members of their family may be exempt from this legislation, take a look at the HSE (Health and Safety Executive) guidelines for further information.
Buildings insurance for business
Business buildings insurance should be a top priority if you have a separate premises such as an office, store, or even if you work from home. Speak to your landlord to see what you are already covered for if you are leasing the premises.
Contents insurance for business
Your business tools and equipment can be covered against damage, loss, or theft under a business contents insurance policy. This can cover the costs for repairs and replacements allowing your business to be operational as soon as possible.
Stock insurance will cover you against damage or theft if you hold stock in storage or at your business premises.
Product liability insurance
If by mistake, you provide a faulty product, and a customer suffers illness or damage as a result, product liability insurance can protect you. Even if you did not manufacture the product, you can still potentially be held liable for any damages.
Personal accident insurance
In the event of serious injury or death caused by an accident, personal accident insurance can cover you. It may cover the costs of medical bills, hospitalisation or even loss of income. Most policies should cover you up to £10,000 for injury and £20,000 in the event of death.
Business interruption insurance
Disruption caused by an event such as fire or flooding to your business can be covered under business interruption insurance. This will provide you with the financial cover to get you operational as soon as possible. If your contents are also insured, in the event of a fire destroying your business equipment such as computers and furniture, and as a result you suffer a loss of revenue, business interruption insurance can help you get up and running again.
Business legal protection insurance
Sometimes referred to as business legal expenses insurance; business legal protection insurance can provide protection against potential costs associated with legal action against or brought to your business. Commercial legal expenses may also be covered.
Motor Trade Insurance
If you work in the motor trade, you will need to ensure you have sufficient Motor Trade insurance.
The cost of business insurance
This depends on a number of rating factors. What’s the nature of your work? Which type of insurance do you need? What level of cover do you require? The level of risk is always the key determining factor on how much you can expect to pay for your business insurance policy.
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An insurer will calculate your premium based on a number of different factors, it is important to be as specific as possible to ensure you’re getting the right level and type of cover your business needs. Similar to all types of insurance, it is calculated on the basis of how likely you are to claim and how much a claim would cost the insurer, a higher level of risk will equal a higher premium. Try to answer all questions as accurately as possible and select the right level of cover to ensure you are protected should you need to make a claim.
How much cover do I need?
In some cases your professional or regulatory body will specify what level of cover is required as standard. The amount of cover you need is dependent on the nature of your business. It is a legal requirement to have a minimum of £5 million for an employers’ liability insurance policy for most businesses. Consider the amount of compensation you may have to pay if someone makes a claim against you. Think about the type of work you undertake and the size of your business contracts from a financial perspective. Check the latest document version or handbook of your professional regulator or body, some will have a minimum standard requirement before allowing you to operate. If you want to have buildings insurance for business, calculate how much it will likely cost for you to rebuild your premises from the ground up. If you wish to insure specialist equipment and business tools, how much would it cost for a replacement?
What about commercial insurance?
Business insurance may sometimes also be referred to as ‘commercial insurance’. It’s insurance designed to protect businesses from any potential risks they may face and give policy holders peace of mind. The two terms are interchangeable.
Let’s start by defining the term ‘commercial insurance’. In simple terms, commercial insurance is insurance that protects businesses. It can cover your business against any losses stemming from injury, damage to property or employee. The term is regularly used to identify core business insurance cover such as professional indemnity insurance, employers’ liability and public liability to name a few.
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Getting business insurance before registering your business
You are able to purchase a business insurance policy before you start trading and even before registering your new business. When looking to take out a policy, you will not usually be required to supply your company registration number including any other business registration details.
Generally, the only business registration you need to complete would be a HMRC self-assessment tax system registration, when setting up a new business as a sole trader. If you are setting up a limited company, there is additional paperwork involved. You are required to register your new business with Companies House (sometimes referred to as ‘incorporating’) and you will be supplied with a CRN (company registration number). Some businesses have the option to carry out this registration process online. If you are unsure about which business structure would be most suitable, there are many guides online that will cover the advantages and disadvantages for each type.
You do not need to register your business before purchasing a business insurance policy, although it is very important to meet the necessary legal criteria and have your business registered before you get started. Insurers will want further information including your type of trade, business address, projected or actual annual turnover. You may be asked about the structure of the business (e.g. limited company or sole trader). However, in most cases, it will not be necessary to supply other details of your business registration including your CRN (company registration number).
Ultimately, this will mean that you can go ahead and purchase your business insurance policy whilst the paperwork is being completed and/or processed when setting up the new business.
Business insurance without a trade license
You are able to take out a business insurance policy before you start trading, also, you may not yet have a trading license in place. Furthermore, if you start trading and your business does not have the required licenses in place, any claims you make may not be payable and your insurance policy might be invalid. Please check your policy details for further clarification on what will not be covered under different conditions.
Trade licenses are not essential for every business. Certain types of businesses will require a license. A relevant licensing authority or local authority will typically issue these, remember to check what license your business may require before you start trading. If you begin trading without the right authorisation, you will be expected to stop trading immediately and may even face legal challenges that an insurance policy will not cover you for. Some examples of business that need a trade license include but are not limited to: taxi drivers, pet stores, and market traders. The UK government’s website has a useful license finder tool that will allow you to check if a license is necessary for your business. It is important to remember that even if a license is not required for you to trade, you still need to make sure your business has been registered. You need to register for self-assessment tax if you are a sole trader and you need to register with Companies House (also known as ‘incorporating’) if you are setting up a limited company. Companies House will supply you with a CRN (Company Registration Number).
Before your trade license has been issued, it may be possible for you to buy your business insurance policy. You can have your insurance in place before you start trading, as your insurer will not request your license details. However, you will be expected to comply with any regulations and laws as part of your policy agreement. As a consequence, trading without the necessary license may invalidate your business policy and render it useless. This means that your insurer will have the right to refuse any claims you make. We strongly recommend that before you start trading, you have the required license and registration process finalised.
For further information on business insurance, please take a look at our blog.