The importance of getting the right insurance cover for a small business

Jonathan Willett, director of Henderson Insurance Brokers Teesside, explains why the getting the right insurance cover is crucial for a small business.

In the current economic climate, a considerable number of people may have left their employers with a substantial pay-off. This will prompt some to become their own boss and set up a company of their own by investing their redundancy package in their own future employment.

At the outset it may not be possible for the fledgling entrepreneur to afford to rent or buy business premises, so the first step on the self-employment ladder can involve using spare space in their home such as back bedroom or by creating an office or work hub in the corner of their living or dining room.

The birth of a small business can be a steep learning curve as many unfamiliar procedures, such as arranging business insurance cover, which were taken for granted when working for someone else, have to be taken into account.

A common misconception is that the home insurance policy, which is already in place, also will cover any home working. However, this is not the case. If someone intends to start a business in their home, it is imperative that they let their current insurers know the details otherwise they run the risk of invalidating their domestic insurance.

Some house insurance policies may cover ‘administrative duties’, but usually running a business from home involves so much more. It is likely that even the most basic of business ventures will involve expensive equipment such as a computer, fax machine, photocopier and an iPad, laptop or other such portable technology for use when out on the road or at client meetings.

The general rule of thumb is that home workers’ insurance will cover buildings, business and personal content against a range of risks such as fire, smoke or explosion, flood, and theft or attempted theft. Another consideration is what happens if disaster interrupts the running of the company.

Many businesses, whether large or small, have little idea of how long it would take them to recover from an incident such as a fire or flood. They are likely to underestimate the cost and length of time it could take to get their operations back up and running following a crisis. Even minor damage can cause major disruption to a business generating extra costs and a loss of income.

The cost of replacing equipment, how long it would take to be delivered, the cost of contracting out the work in the interim, the cost of repairs, and if you have to move to temporary premises while the your home office is re-instated, all need to be taken into account. Business interruption insurance also will compensate for a fall in gross profit as well as meeting any additional working costs.

Another key question a new home business needs to ask itself is whether their type of operation will involve visitors to the house in connection with the venture.

It may not be a legal requirement, but public liability insurance acts as a protection against damage or loss triggered by claims made from someone coming into your home on business grounds. This covers injury to a person or damage to their property caused by the home worker or their business and also will encompass legal fees, costs, and expenses.

For instance, many people do not realise that the NHS can charge a business for its services and treatments, including levying costs for the ambulance if one has to be called to transport the person who has been hurt to hospital.

New ‘one person’ businesses also need to protect their best asset – the “Key Person”. Key Person Insurance is designed to pay out an agreed sum of money if an employee integral to the running of the business suddenly dies or has to stop work due to a critical illness. There are many different types of cover, dependent upon the specific needs of the company.

While many new business owners focus on kit and equipment vital to the commercial operation, another important component can get over looked – staff vital to the company’s operation including the owner. After all, a sole trader’s business could cease to exist completely if they are unable to work and do not have contingency plans drawn up. Therefore, keyperson insurance is applicable to companies of all sizes including new start-up businesses.

Related: Consider key person insurance for your small business

Not having an adequate insurance policy can affect a company’s success and profitability. Often potential customers will ask to see proof that sufficient insurance cover is in situ before placing an order or contract. Just like the Scout movement, businesses, including home-based ones, need to “be prepared” when it comes to potentially expensive unforeseen incidents and circumstances.

Cash-conscious businesses that are feeling the financial strain in the current economic climate, may think it is worth taking a risk when it comes to insurance cover. However, having an “it will never happen to me” attitude could prove costly and even lead to the demise of the business.

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