Business insurance helps protect you and your business against unfortunate events. If something goes wrong, it can mean the difference between staying in business or not.
We can’t always prevent bad things from happening, but we can buffer any potential damage. If a customer or an employee makes a claim against you, business insurance can offer protection.
Business insurance can cover all kinds of things including an accident in the workplace, liability claims, theft, fire, legal fees, loss of documents or business interruption.
Here, we look at the different types of business insurance and why you might need it.
Why do I need business insurance?
Some kinds of business insurance are a legal obligation, like employers’ liability, while others are optional but can help provide you with peace of mind. Insurance can also give your customers and clients the reassurance they may need to do business with you.
As a minimum, many businesses will also need public liability insurance and professional indemnity insurance. Areas like key people insurance can also be a stipulation set by investors, depending on your business.
Compulsory business insurance
In the UK, employers’ liability insurance is compulsory if you have employees, subcontractors or anybody doing work experience. This will cover you against any claims in the event of disease, injury, illness or death of any of your staff, in the course of their work.
Optional business insurance - depending on your business
Other types of business insurance are optional but could be wise. You should make your own decision based on the risk, probability and likely cost compared to the regular premiums and any excess amount not covered by the business insurance.
For instance, you may sell high value goods, so theft could be a big risk for you and potentially very costly. If you were offering services to the public within your home, for example lessons in maths, then liability insurance to protect against accidents could be a good idea.
With many businesses working away from their regular premises, it’s good to check whether your standard business insurance covers your equipment for damages at home or elsewhere. Laptops or mobiles can often be covered by ’Electronics and Portable Equipment cover’ which can be an optional add on - for example with cover up to £5000 for a small business.
Have a good think about your own specific business and the risks it involves - every business is different. If you’re a purely online business, you could think about cyber insurance to protect against hackers. If you’ve had issues with getting paid due to clients going out of business, how about invoice insurance?
You can find a range of companies offering business insurance in the Starling Marketplace, the in-app space where customers can connect to third-party products and services. These include Superscript, offering comprehensive business insurance tailored to your needs and Nimbla, focused on reducing trading risks through invoice insurance
Business insurance and tax
For taxation purposes, business insurance is considered as an ’allowable expense’, because it’s an essential cost that keeps your business running. When you’re calculating taxable profits for your tax return, you can deduct business expenses from your income.
Types of business insurance
Here are some examples of business insurance types you should be aware of.
- Public liability insurance
- Professional indemnity insurance
- Product liability insurance
- Business property insurance
- Business interruption insurance
- Invoice insurance
- Legal protection insurance
- Tax investigation insurance
- Cyber insurance
- Key person insurance
Public liability insurance
If you come into physical contact with clients or members of the public, public liability insurance can be very useful. It can cover you for an accident to a visitor on your premises, whether they were invited or not. It can also cover damage to other people’s property when you’re out and about.
Public liability insurance isn’t a legal requirement, but customers may require it and you should ask any subcontractors working on your premises to provide their own.
Professional indemnity insurance
This kind of insurance is especially important to businesses offering knowledge, advice and consulting services. It can help protect you against claims of negligence and also for loss of documents or data.
If you’re an accountant, solicitor, architect or any other kind of professional required to advise or make decisions based on your expertise, this type of insurance is for you. This insurance is usually required by your professional body in order to protect the company’s clients.
Product liability insurance
As the name implies, this covers any damage or injury caused by the products that you sell. For example, if you sell electric lamps and one of them, when it’s being used in a regular way, gives someone an electric shock, you may be held responsible. In fact, even if it isn’t your fault because the product was used incorrectly, you may also have to pay the legal costs to defend yourself against such a claim. And that could be pricey.
Property insurance for businesses
You may find that property insurance is required by your landlord or mortgage company. It’s actually often much the same as for individuals and will cover any damage to your property and/or contents. You can also insure your stock and any cash on the premises against fire, theft or other damage.
Business interruption insurance
In the event of a fire, flood or perhaps a hack, business interruption insurance could help protect your profits and keep you in business. Some policies will include pandemics but this isn’t always the case.
Invoice insurance helps protect if your customer or client goes into liquidation without paying your bills. Whilst you still need to check the credit of all your customers, it can protect you financially if any of your clients go under.
One company that offers invoice insurance is Nimbla. Starling customers can connect with Nimbla in the Starling Business Marketplace.
Legal protection insurance
If someone takes legal action against you or your business, legal insurance can help cover the cost of defending yourself. You might be surprised to hear that many claims are settled out of court, just because the company can’t afford the legal costs of defending themselves. Having this insurance means that money isn’t a barrier to justice.
Tax investigation insurance
Tax investigation insurance covers the professional costs to defend you, if you’re selected for an investigation by HMRC. An investigation may happen because you operate in what HMRC see as a high risk industry, or because of previous bookkeeping errors, or any number of other reasons.
Investigations can be straightforward or very stressful. This insurance can help provide the peace of mind.
This type of insurance is designed to cover you in the event of hacking or ransomware attacks - provided that you have taken appropriate precautions. Your insurance company may also help you to protect your business against the main risks.
Key person insurance
If a key person, such as a director or another vital member of staff, is unable to work due to death, illness or disability, this kind of insurance can compensate the business.
If you’re a small business you probably won’t need more than £50,000 to £100,000 cover, but you can base the decision on your turnover estimation. Talk it through with an insurance broker, or the provider, to get the right cover. This insurance is usually paid through monthly premiums, so like your business insurance, it’s a cost that comes out monthly. Important to bear in mind for cash flow and expense categorisation.
Key person insurance is also known as ’Keyman’ insurance. Keyman Insurance is for the benefit of the business, whereas Relevant Life Insurance is for the benefit of the employee and their family.
How to choose business insurance
Some companies offer better deals than others for small business insurance, so it’s important to do your research. Remember that cheaper doesn’t always mean better. If you don’t have the time for research, or don’t feel confident making the decision, then a reputable insurance broker could be an idea.
When you choose business insurance, always think about the specific needs of your business and the risks it faces.
Watch out for business insurance scams
Choose a reputable company and shop around. If an insurance deal seems too good to be true, it probably is. Read what the review sites say - not only the reviews on the insurance company’s own website. There are also some good comparison websites to explore, such as Simply Business.
It may seem a little boring, but before you sign up to any insurance policy, make sure you have a good read of the small print. It’s really important. Look at the terms and conditions to see exactly what’s included or excluded. Cheaper policies usually only include the basics, so make sure you’ve covered everything that you need.
You could also try finding insurance through a reputable insurance broker. The British Insurance Brokers Association (BIBA) have a useful tool that can help.