Taking a chance on good fortune is a dicey business when you’ve got a living to make, wages to pay and bills to settle. So, if you’re running your own small business, the only safe bet is insuring against hard times and disaster.

Some policies will help you sleep easier – such as contents insurance – while others are required by law. In any event, you should seek professional advice and make sure you take out the appropriate cover.

Employers’ liability insurance is a legal requirement for nearly all businesses. It covers compensation that may be paid to staff who are injured or fall ill while working on or off site.

It’s no gambling matter – you must be covered for at least £5 million, although most insurers offer £10 million. The Health and Safety Executive has the power to fine your business up to £2,500 a day if you are not covered properly.

Public liability insurance cover isn’t compulsory, but if customers or clients visit your premises then it’s a high risk strategy not to have it. This insurance covers you for legal fees and expenses if someone is accidentally injured by you or your operation. If someone trips or falls and it’s your fault, you could be facing a hefty bill. It will also cover you if you damage someone else’s property while on business – such as spilling coffee over a client’s computer.

Professional indemnity insurance protects your business from claims by dissatisfied clients. Anyone can make a mistake, but if it turns into a dispute then the stakes are raised and the results could be crippling.

There’s even insurance for limited company directors who, by definition, are protected from liability. But Directors’ Insurance gives added security in exceptional circumstances, such as negligence, when directors can be sued.

Odds are you’ll be keeping an eye on general business insurance policy too. You’ll need to consider equipment insurance to cover the computer and printer in your home office, or buildings and contents insurance to protect your premises, fixtures and fittings. And don’t forget to update motor insurance policies to include work use. If you’re employing someone who uses their own vehicle for work, it’s your responsibility to make sure they are properly covered.

Case study: Premises caught fire

Ronnie Park, managing director of conveyancer OneSearch Direct, realised how important it was to have an insurance policy after his premises caught fire. ‘It happened in the middle of night, and by the time we got there the whole place was ablaze. Fortunately we had a contingency plan and insurance cover. If we hadn’t, there’s no question that we would have lost the company.’

However, trying to get the money back from his insurance provider proved difficult. ‘It took 18 months to reach a settlement. I think the problem is that business disruption is not an easily measurable cost. It covered our loss of machinery, but the loss of profit caused by the damage was hard to calculate.’

Park found that his insurance company did everything it could to avoid paying. ‘They actually brought in an expert who claimed that we wouldn’t have made any profit during the period we were out of action. So we had to bring in our own expert to fight them. It took a long time, but we were eventually awarded £2 million.’

Case study: Credit Insurance

Certain policies may be hard to access these days, as Joanne Davison, co-owner of freight company Davison European, found last year when seeking trade credit insurance. ‘I decided to get cover after we lost £160,000 due to bad debt in 2009. We were working with one big-name company that suddenly went into administration, which wiped 30 per cent off our ledger book and put us in a dreadful position.’

Davison says the terms offered by the majority of insurance providers for bad debt protection were too onerous: ‘They wanted us to put our house on the line and we weren’t prepared to do that.’ Eventually she found a company prepared to offer more favourable terms.

‘If we hadn’t, I would have had second thoughts about whether to continue with the business. We haven’t made a claim yet, but it’s such a relief to know that if one of our customers does falter, we’ve got the insurance to fall back on.’

Negotiate hard to reduce premiums

Stephen Bentley, owner of Granby Marketing Services, has a turnover of £5 million and says the key to having strong policies is using a firm that knows your business well.

‘I’ve been running the business for about ten years, and in that time I’ve had three different brokers. With each successive one we managed to bring down our premiums. We actually pay less now than when we started out.’

‘I think the problem is that once the business insurance policies are written, they don’t get reassessed. Our original package was £55,000 and we changed brokers when they wanted to increase it by £15,000. At the moment we’re paying £50,000, but the main benefit of our current broker is that they act as a risk manager and help inform all our health and safety policies.’

Further resources

What is commercial combined insurance? – A way to buy multiple types of coverage in one go for your business.

What insurance do you need for a small business? – A comprehensive look at what cover is out there.