What types of business insurance do you need?

One way or another, you’re going to need some form of insurance for your business. There will be some policies you may choose purely for peace of mind, whereas others are a legal requirement. As always, seek advice from a business advisor such as your accountant or solicitor on your particular needs.

There is a golden rule in insurance: If your circumstances change, however slightly, tell your insurance company and get the change included in your policy. Get this wrong and you could find yourself out of pocket in the event of a claim.

Here are the different kinds of insurances typically needed by small businesses.

Public liability
This is protection from third party claims caused by injury or death, or damage done to property as a direct result of your business activities. This is a necessary insurance if any members of the public, clients or customers ever visit your business premises, however infrequent.

PL insurance should also include legal fees and expenses. This cover typically does not include claims made by your own staff. Many businesses are covered for up to £1 million. This is not as much as it sounds, particularly if you could have several simultaneous claims.

Employers’ liability
This obviously only applies if you employ someone and covers claims arising from accidents or sickness, either on or off site. It applies only to employees. You do not have to take out this insurance if you are the sole employee of your limited company and own at least 50 per cent of the share capital.

Sole traders are also exempt, as are those who employ only close family members. However, if you ever use temps or seasonal workers, you need this cover.

As a general rule, the definition of an employee is someone for whom you deduct NI contributions and income tax from their salary, and whose working day you control.

The norm is about £10million of cover, and the minimum is £5million. Don’t worry, it’s not expensive to buy for most businesses. The certificate must be displayed somewhere where all of your employees can see it.

Professional indemnity
This is really for businesses that deliver a service, such as accountancy or legal representation – or indeed any business acting in a professional capacity. It is a legal requirement for accountants, but for others, such as an IT consultancy, it is highly recommended for peace of mind. Again, seek professional advice on whether it’s a wise move for your venture.

In a nutshell, Pi insurance protects your business from legal action instigated by unhappy clients over issues such as negligence, infringement of any legal requirements, loss of documents, or dishonesty, such as the theft of a client’s money.

Many insurance suppliers will defend you all the way to the High Court if necessary. Even if you lose, the policy should cover you for any damages you then are liable for, subject to the level of cover you have. The policy should also cover the cost of fixing any mistake made, thus preventing it from becoming a bigger problem.

When it comes to deciding how much cover to give yourself, the answer is simple: as much as you can realistically afford. As a guide, many government departments require their contractors or consultants to have at least £5million cover.

You may also be asked about retro-active cover – which covers any work you have done up to the point before you took out the policy. Again, if you can afford it, it’s an excellent way of making sure you have all the bases covered.

Directors’ insurance
If you are the director of a limited company (LINK: Trading Structures) you are largely protected against claims. However, you could still be sued in certain situations, such as negligence. This insurance protects you from such an eventuality.

Equipment insurance
Imagine that you spill coffee down the back of your server. Then imagine having to fork out thousands replacing it? If you don’t like the sound of that, it’s worth considering equipment insurance. This applies whether you work on dedicated business premises, or from home.

Contents insurance
Standard insurance to protect the fixtures and fittings of your premises. If you work from home, please ensure your home contents policy will cover your business venture. If you own rather than rent premises you will need buildings insurance too

Motor insurance
A legal requirement for all vehicles. If you use your own vehicle in the course of business, make sure your insurer is aware of this. Otherwise you may find a claim for an accident during work time may not be covered.

Legal expenses
If legal action is taken against your business, this will cover you for court costs and legal fees.