Buying insurance for any small business can be a baffling process so how do you know which insurance policies are needed?

What insurance cover does my business need?

Buying insurance for any small business, whether you’re a one man band working from home as a sole trader or have a small number of employees based in separate working premises, can be a baffling process; how do you know which insurance policies are needed? Do you need professional indemnity cover or public liability protection and what’s the difference between the two?

And if you know you need it, how much do you need to buy? Will that claim against you be for £1 million or £10,000?

In order to ensure that your business is properly protected you need to carefully consider and understand all the risks your business may face when trading.

Covering your assets

Look at what ‘things’ or physical assets are a part of your business. These can be things like:

• Computers
• Laptops
• Office equipment
• Books and journals.

Coming to some sort of realistic estimate here will help you arrive at a figure for office contents cover. You should be careful not to underestimate the overall value of your contents; think about what would happen if your office was entirely destroyed by a fire or flood. How much would it cost to replace everything your business owns?

Do I need public liability insurance for my business?

Secondly, if you have employees, there is indeed a legal obligation to buy at least £5 million worth of Employers’ Liability cover which will protect you in the event that an employee sues you for being injured at work.

Next, consider if you deal with people coming on to your premises or whether you come into contact with members of the public. Public Liability cover, which protects you in the event a member of the public is injured or property is damaged as a result of your business’s actions, is generally available in increments from £1 million upwards – think of the worse case scenario that could affect your business when choosing how much to buy.

And if you make a mistake…

Do you offer professional services such as IT or marketing consultancy for example? Then you will need to think about having Professional Indemnity cover which protects you if you make a mistake – a breach of your professional duty – which costs your client money. The cover can provide for legal costs and financial compensation. Again, try and think of the worst case scenario when considering how much cover to buy.

In an economic downturn small businesses, particularly in the IT sector, often see an increase in legal action from their clients who, in a bid to save money and escape from a contract might consider suing a supplier for ‘breach of contract’ or not providing the service they had agreed to. If this is a risk you face, you should ensure your Professional Indemnity insurance will cover you.

Buying insurance can be confusing but if you can break down each element of your business you can start to understand the risks you face and assess the likelihood of each one damaging your business. Once you’ve bought the correct insurance for your small business you can have relative peace of mind for the road ahead as you look to win clients.

Watch the below video on small business insurance

Further reading on insurance

• Small business insurance: An essential guide – A look at what cover is out there and speak to four businesses that put key policies in place.
• Employers’ liability insurance – what is it and do you need it? – How much will you pay and what happens if you don’t have it?
• Business insurance: 10 common questions answered