What business insurance do I need?

Every small business owner needs some combination of business insurance for financial and legal protection against liability in a crisis.

Yet, with limited resources, it can be tempting to look into cutting costs whenever you can. That could mean deciding to purchase only business insurance that you're legally required to have.

But that's overlooking the fact that an uninsured accident could potentially sink your business.

In an Inc. article, startup founder Leo Welder shared about his decision to skip out on a intellectual-property litigation insurance while he was in the process of purchasing general insurance policies for his business.

This proved to be a costly mistake. When his company was later embroiled in a lawsuit with a publicly traded company, he wound up paying several hundred thousand dollars in legal fees.

Looking back on his experience, his advice for fellow business owners is: "It's not just a matter of 'Can I afford this?' but a question of 'Can I afford not to have this?'"

With many different types of business insurance available, it can be difficult figuring out exactly what you need.

Here's when our guide comes into the picture. Below, we answer FAQs concerning business insurance.

‍Business insurance is designed to protect you from the everyday risks associated with running your business.

Your insurance needs are specific to your business. We'll help you understand why you need insurance and what type is best for your business. 

Here are the top five reasons why you might need insurance:

1. You provide a professional service or handle client data

In this case, professional indemnity insurance might be prudent; covering you for claims made against you by a client due to errors in your work that have resulted in a financial loss.

2. It's a requirement imposed by regulatory bodies

This is a basic requirement in order to operate in some professions. For example, solicitors, accountants, and some healthcare professionals are required to have professional indemnity insurance.

3. You interact with third parties

Public liability insurance might be worth considering if you interact with third parties such as customers, clients, suppliers, or other members of the public.

This covers you for claims made against you by one of these third parties. It is particularly important in cases where there is an increased risk of a customer being injured, e.g. a company offering adventure sports. Most retail outlets, food outlets, grooming, construction, and tradespeople take out this insurance.

4. You are an employer

Employer's liability insurance is a legal requirement in the UK for businesses that employee one or more employees.

It is in place to cover workplace injury or damage claims made by a member of staff. Some companies may be exempt, including many businesses that only employ close family members.

To check if your business is exempt, review Health and Safety Executive (HSE) guidelines or seek professional advice.

5. You will be investing in property, equipment or inventory

A retailer may hold a large amount of stock. An architect may invest in technology or equipment. A restaurant would invest in ovens. Whatever the case, an insurance policy that covers contents, buildings or stock makes for a prudent investment.

What are typical business insurance cover amounts?

The amount of business insurance you need depends on your specific business requirements and risk appetite.

It is worth noting that in some cases, you will need a specific type of insurance in place to sign a contract, depending on the situation and company.

The three most popular types of insurance come in the following brackets:

• Public liability insurance - £1 million to £10 million
• Professional indemnity insurance - £50,000 to £2 million
• Employers' liability insurance - £5 million to £10 million

Business insurance is one of those things that no one really likes doing or to think about, but when you need it, you can't imagine what would have happened if you did not have it.

Invest some time to understand what kind of insurance you really need, and use Hiscox, Simply Business or Tapoly to find your policy.

Will subcontractors be covered on my Employers’ Liability Insurance?

Labour-only subcontractors (LOSC) who work under your direction using your equipment are considered to be under your employment. It is a legal requirement that you need to have employers' liability insurance for these subscontractors.

Bona-fide subcontractors (BFSC) are those you hire for their expertise to work under their own direction. These subcontractors use their own equipment, are paid via invoices, set their own hours and work without supervision. They aren't considered as your employees, and as such, are required to provide their own insurance.

Before engaging bona-fide subcontractors, do check that they are licensed and that they, along with their staff have public liability insurance.

Can I get insured if I have not registered my business?

You can get business insurance before registering your business.

When you’re buying your policy, information that your insurer will ask for include your business address, trade type and actual or projected turnover. You may also be asked about your business structure.

Your insurer won't ask about your company registration number (CRN) or other business registration details. As such, you'll be able to buy business insurance while you're in the midst of settling the paperwork you need to set up your company.

Can I get business insurance without a trade licence?

Your licence details aren't required when you buy business insurance, so you may buy your business insurance before your trade licence has been issued. If you're unsure about whether your business requires a trade licence, you may find out using HMRC's licence finder tool.

Bear in mind that you need to get all the necessary paperwork sorted out, and that you have obtained your trade licence before you begin trading.

That's because abiding by all laws and regulations is part of your agreement with your insurer. If you begin trading without a licence, your policy may be rendered invalid, and any claim you make may be rejected.