In some situations, insurance is a necessity. If you’re taking on staff, for instance, the law says you must have employers’ liability insurance in place. Depending on your field, you may also find that your clients require you to be covered against certain risks before they consider doing business with you.
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Then there’s a range of insurance coverage that isn’t an absolute requirement but still needs to be on your radar. As well as giving you peace of mind, having comprehensive insurance cover helps to show your customers that you’re serious both about your business and their safety. What’s more, if something does go wrong and you’re faced with a potential claim, having an insurer on board to steer everything through can save you a great deal of hassle.
So what should a small business be looking for in a policy? We take a look…
Public liability insurance
With public liability insurance, you are covered against claims for injury to members of the public and for damage to property belonging to another business or individual. This should be on your list if members of the public such as customers and suppliers visit you on your business premises – including your home if that’s where you work from. It also needs to be considered if you conduct your business activities off-site.
What to look for:
- Level of cover: the lowest standard general level of coverage is £1 million. For the vast majority of small business, this should be sufficient. Take care, however, if a lot of your work is on customers’ properties. Are you going to be bidding for contracts in big corporate premises? Do these customers tend to stipulate a higher level of cover before granting contracts? If so, protection for £5 million or £10 million may be necessary.
- Level of excess: a cheaper policy may appear good value but what level of outlay are you expected to meet on each claim?
- Business activities covered: as always, it’s a matter of checking the endorsements and exclusions. Check whether claims arising out of activities conducted at height are excluded, for instance.
- Is ‘defective workmanship’ specifically excluded? If so, it may also be prudent to consider indemnity insurance in addition to standard public liability cover.
Employers’ liability insurance
With some very limited exceptions (e.g. if you only employ close family members), employers’ liability insurance is an absolute requirement if you take on staff. The minimum allowable cover limit is £5 million and you can be fined up to £2,500 for each day you’re not covered.
What to look for:
- If you rely on occasional contract, seasonal or occasional staff, make sure your policy covers these as well.
- The policy may specifically exclude incidents that occur when driving as these will be covered separately by your firm’s motor insurance policy. If it is included, make sure you are not paying twice for essentially the same cover.
- This category of insurance covers your business against claims by your employees in the event they suffer injury in the course of their work. You may also wish to consider the wider implications of what would happen if one of your team dies or becomes unable to work. Consider Key Person Insurance to protect your business against lost income should something happen to an invaluable team member.
Professional indemnity insurance
In some professions such as law, accountancy and architecture, professional indemnity insurance is an absolute requirement. More widely, anyone who provides professional advice to their clients (e.g. management consultants and IT contractors) should consider it. The precise scope of the coverage will depend on your sector. As such, it’s highly advisable to consult a PII specialist with experience of your niche before you purchase a policy.
What to look for:
- Does the policy comply with the standards set by your profession’s governing body or professional association?
- Are errors and omissions, damage from latent faults and claims arising out of a failure to meet time limits all included?
- Are stipulations provided on what to include – and what not to include in your client contracts? Are you clear on this?
- Professional negligence claims can be complex. Is there a clear procedure on what the insurer will do – and what you will be expected to do in the event of a claim?
Other areas of cover
Those hard-won first contracts tend to be critical to the success of your business. In light of this, credit risk insurance is worth considering to reduce the risk of exposure to customer non-payment, including targeted cover that applies to certain specific customers becoming unable to pay.
Buildings content insurance is essential and you should consider taking out specific cover for business-critical plant and machinery.
Cyber Insurance comes in two main flavours: – “first party” coverage and “third party” coverage. First party coverage relates to your business and the various costs involved in remedying a cyber attack. Third party coverage is more about your customers, specifically the costs of legal claims that might be made against you.
Product liability insurance is similar to public liability insurance, in that it covers compensation claims due to injury or damage caused to a member of the public. The difference is that the injury or damage is caused by a product that has been supplied, installed, maintained or manufactured by you. For example, faulty wiring in a remote control car causes the toy to overheat and catch fire. The product liability policy could cover compensation claims for subsequent property damage. It’s important to recognise that this doesn’t act like a warranty: it won’t provide cover if the product fails to function properly or stops working.
Bundling your policies
Does all of this sound like a lot to juggle? It’s worth bearing in mind that brokers are able to put together packages tailored to the needs of individual businesses. Typically, this includes public liability insurance with any necessary add-ons to cover the nature of your particular work. It can also include employers’ liability and professional indemnity cover where relevant. This ‘bundled’ approach can take away a lot of the hassle of getting your insurance sorted out. As with any insurance product though, it’s always worth shopping around for the best deals.
- What is commercial combined insurance? – A package of policies allowing you to buy multiple types of coverage in one go.
- Do sole traders need professional indemnity insurance? – Some do, some don’t. Find out more here.
- Understanding Employers liability insurance – A guide from The Association of British Insurers