Insuring your business

When start­ing a new busi­ness, you will no doubt recog­nise the need for insur­ance. It can pro­vide com­pen­sa­tion and peace of mind should things go wrong but can also rep­re­sent a sig­nif­i­cant cost.

In this fact­sheet we con­sid­er the dif­fer­ent types of insur­ance you need to con­sid­er.

Compulsory insurance

Employ­ers’ lia­bil­i­ty

Employ­ers’ lia­bil­i­ty insur­ance is com­pul­so­ry to cov­er your employ­ees. By law you must have at least £5 mil­lion of cov­er and this must come from an autho­rised insur­er, although a min­i­mum of £10 mil­lion is now pro­vid­ed by most poli­cies. You must dis­play the cer­tifi­cate of insur­ance in the work­place. If your busi­ness is not a lim­it­ed com­pa­ny, and you are the only employ­ee or you only employ close fam­i­ly mem­bers, you do not need com­pul­so­ry employ­ers’ lia­bil­i­ty insur­ance. Lim­it­ed com­pa­nies with only one employ­ee, where that employ­ee also owns 50% or more of the company’s shares, have also been exempt from com­pul­so­ry employ­ers’ lia­bil­i­ty insur­ance.

Motor vehi­cles lia­bil­i­ty

Motor vehi­cles lia­bil­i­ty insur­ance is also com­pul­so­ry and must cov­er third par­ty insur­ance: this is the legal min­i­mum.

Optional insurance

Oth­er cat­e­gories of insur­ance are option­al and a deci­sion as to whether or not you need cov­er under any giv­en head­ing will depend on the nature of your busi­ness and an assess­ment of the risks.

Pub­lic lia­bil­i­ty

Although strict­ly this is not com­pul­so­ry you will almost cer­tain­ly feel that you need cov­er under this head­ing. It cov­ers claims for dam­ages to third par­ties.

Prop­er­ty

You can think about lim­it­ing cov­er to spe­cif­ic risks such as fire and flood or pro­vid­ing more gen­er­al cov­er. Con­sid­er the lev­el of cov­er you would need for the premis­es (if you own the build­ing), equip­ment and stock. If you rent your premis­es then you should check that the land­lord has the appro­pri­ate cov­er.

Theft

If your busi­ness does not involve expen­sive items of equip­ment then you might decide to pass on this one, at least ini­tial­ly. If you do decide to pro­vide cov­er for theft then an insur­er will require a rea­son­able min­i­mum lev­el of secu­ri­ty.

Pro­fes­sion­al indem­ni­ty

This is only like­ly to be nec­es­sary if you give advice which could make you liable. It pro­tects against any loss suf­fered by your cus­tomers as a result of neg­li­gent advice. In some pro­fes­sions it is com­pul­so­ry – exam­ples being the law, accoun­tan­cy and finan­cial ser­vices. How­ev­er it is com­mon in oth­er sec­tors such as com­put­er con­sul­tan­cy and pub­lish­ing.

Busi­ness inter­rup­tion

This cov­ers com­pen­sa­tion for lost prof­its and extra costs if your busi­ness is dis­rupt­ed, due to say a fire. It is also referred to as ‘con­se­quen­tial loss’ insur­ance.

Key man

A small busi­ness is often depen­dent on key mem­bers of staff. What would hap­pen if they became seri­ous­ly ill or died? Do you need to con­sid­er insur­ance cov­er to pay out in such a sit­u­a­tion?

Spe­cialised insur­ance

A whole host of dif­fer­ent poli­cies cov­er a range of spe­cial­ist sit­u­a­tions – for exam­ple engi­neer­ing insur­ance and com­put­er poli­cies.

Working from home

If you are plan­ning to start your new busi­ness from home then don’t assume that your nor­mal house­hold insur­ance will be enough. It will not usu­al­ly cov­er busi­ness risks. It is pos­si­ble to obtain spe­cial ‘work­ing from home’ poli­cies.

Shopping around

It may be stat­ing the obvi­ous but it is impor­tant to shop around to get the best deal. You should obtain sev­er­al quotes and always be wary of cheap deals. A per­son­al rec­om­men­da­tion may be the best way to decide.

Level of cover

Again it may be stat­ing the obvi­ous but too much cov­er and your cash flow will suf­fer, too lit­tle and the con­se­quences can be cat­a­stroph­ic.

Con­sid­er the lev­el of cov­er you need. With build­ings and equip­ment make sure you are cov­ered for the full replace­ment cost.

If there is to be an excess on any pol­i­cy make sure that it is set at a sen­si­ble lev­el.