Business insurance: Everything you need to know

Insurance offers vital protection from the crippling costs of a claim against your business. But which insurance do you actually need and which is merely optional?

Business insurance is a vital safeguard for you, your employees, and anyone else your business comes into contact with, including contractors and the general public.

If the worst should happen, and your business is at fault, failure to have adequate insurance in place could see you hit with punishing costs in the form of legal fees and compensation payouts.

That’s why you should take out a comprehensive insurance policy as soon as possible. But as some insurance is required by law, other insurance is advisable, and some isn’t necessary for your business, what should you actually include in your policy?

On this page we’ll explain the key types of insurance every business owner either needs or should seriously consider taking out.

Jump straight to a particular section or read on for the full guide.

  1. Employers’ liability insurance
  2. Motor insurance
  3. Property insurance
  4. Financial insurance
  5. Directors’ and officers’ insurance
  6. Cyber insurance
  7. Find insurance now

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Business insurance required by law

Get hold of these policies or bundle them into a package to keep you on the right side of the law.

Employers’ liability insurance

If one of your employees suffers an accident, injury or illness as a result of working for your business, you could be liable.

Employers’ liability insurance, which is a legal requirement, covers any legal or compensation costs arising from a claim made against your business by a past or present employee. 

Even if you have just one employee, you must have employers’ liability cover of at least £5m. Many policies offer a cover limit of £10m as standard. However, there are a limited number of exceptions, including if you are a publicly funded organisation or if you employ only family members.

Any business that does not have the required employers’ liability cover could be fined up to £2,500 for each day they do not have adequate cover in place.

Motor insurance 

If your business uses any motor vehicles, you’ll also need to have motor insurance.

You must have third-party motor insurance at a minimum, which covers you in the event that someone is injured or their property is damaged by one of your vehicles.

According to the law, your motor insurance policy must have unlimited cover for personal injury and at least £1m for property damage.

Find insurance for your small business now

Additional covers for compensation claims and legal action

Your business could also be held liable if a customer or member of the public is injured or their property is damaged on your premises or as a result of your work.

That’s why, although it’s not a legal requirement, we’d strongly advise taking out public liability insurance, which can contribute to any compensation and legal costs if a claim is made by a member of the public. This applies if you work from home and allow members of the public in.  

>See also: What is public liability insurance, and does it cover Covid-19 claims?

If your business gives professional advice, you could also include professional indemnity insurance. This covers the cost of defending and settling claims against you for making a mistake, being negligent, or giving poor advice. For example, if your advice damages a client or customer’s reputation or causes them financial loss.

Professional indemnity insurance is not a legal requirement, but in certain sectors, there are professional bodies and regulators that require you to have a minimum level of cover.

Property insurance

If your business owns property, buildings insurance helps to pay for unexpected damage to the premises from something such as a fire or a flood. The cover can include accidental damage, as well as costs for things like identifying the source of a gas or water leak.

When deciding how much property insurance cover you need, you should take into account the cost of repairing or rebuilding the property, replacing any fixtures and fittings, and site clearance. As the rebuild cost is different to the property’s market value, don’t forget to include the cost of professional fees for a valuation assessment as well.

Even if you don’t own any property, you should probably have some level of contents insurance in place to cover the cost of theft or damage to any of your essential equipment, furnishings, fixtures, and stock.

Directors’ and officers’ liability insurance

Also known as management liability insurance, this cover protects the people in the business who have senior management responsibilities. The insurance guards against claims of breaching health and safety laws, misadministration of the company pension or making errors in financial reporting. It will defend you in the event of a fine or a disqualification while covering legal and compensation costs. If you’re seeking investment, you’re likely to be asked if you have this cover.

Financial insurance

Things could be going very well, but if a customer goes under or is unable to settle their invoices, it could seriously damage your cashflow and put your business at risk. That’s why trade credit insurance, which protects you if a customer pays late or becomes insolvent, is vital for any business that sells goods or services on credit terms.

It can also give you the confidence to expand and build commercial relationships, and make your business more attractive to potential investors and partners.

Cyber insurance

As well as transforming the way businesses operate and interact with each other and their customers, the digital world has created a host of new threats, such as online fraud and data theft. Criminals could lock you out of your own IT systems, steal sensitive data, or trick you into handing over money.

That’s why any modern small business should seriously consider cyber insurance. It can help to cover the costs of getting you back up and running after a cyber attack and even repair any resulting reputational damage. It can also compensate you for loss of income caused by a data breach and offer financial protection against claims for falling foul of GDPR regulations.

Insulating your business from risk

The right blend of insurance policies can give you peace of mind by mitigating the debilitating costs of a lawsuit made against your business in the event of an accident, injury, or other disaster. 

However, you’re not completely off the hook. You should still assess any potential risks up front and put in place measures that protect your business, employees, customers, and members of the public to minimise the chance that you’ll ever have to use your insurance.

Your insurer can give you advice on how to identify and manage risks effectively, and can provide support by responding quickly and effectively when things do go wrong.

And while there are many other more targeted and specialist types of insurance available, the above should form a large part of a comprehensive business insurance plan.

Find insurance for your small business now

Now that we’ve examined the key types of business insurance, you may have realised you want to look at your existing policies or sign up for new ones.

If you’re looking for business insurance and aren’t sure where to begin, why not use our free quote tool to find a tailored commercial combined policy that will cover all your needs.  

Simply fill in our free quote-finding form and answer a few questions about your business (it takes less than a minute).

Further reading

What is professional indemnity insurance? – Professional indemnity insurance provides cover if somebody sues your business and they allege that your advice caused financial loss or damaged their brand. It’s not just for accountants and lawyers but for anyone offering a personal service, even web designers

Employers’ liability insurance – what is it and do you need it? – Here, we answer all of your questions around employers’ liability insurance – how much will you pay and what happens if you don’t have it?

What is commercial combined insurance? – Commercial combined insurance allowing you to buy multiple types of coverage in one go for your business. Find out more here

Henry Williams

Henry Williams

Henry Williams is a freelance journalist specialising in small business topics, such as Making Tax Digital.