Businesses face many hazards but getting the right insurance could help protect you against many of them. While this may seem a low priority for many people starting up, ignoring the issue is not worth the risk.

Basic business insurance will cover risks such as fire, theft, employers’ liability and interruption of business following damage. However, there is also an array of specialist insurance, which is worth looking at. This guide looks at the main types of cover to consider.

Legal requirements

Before we look at all the different options available, there are two mandatory insurance requirements for any business.

Employers’ Liability

If you employ anyone, even on a casual basis or part-time, you must by law have Employers’ Liability Insurance. The minimum limit for all employers is £5million.

You must display the annual insurance certificate where all staff can see it and keep old certificates for 40 years – Health & Safety inspectors can ask to see them at any time.

Motor Insurance

If you use your own vehicle for business purposes, you must inform your insurers, even if no one other than you will be driving your vehicle. You need to be sure your motor insurance policy covers you if you have an accident while you are working.

For this guide, we have categorised all other policies into three main areas – your property, your liabilities and expenses, and protection for you.

Your property

Buildings and contents

The contents of your premises (and the buildings if you are responsible for insuring them) can often be amongst your most valuable assets. Therefore it is vital that you insure them against a comprehensive range of risks (fire, theft, flood, etc…) and for the full cost of replacing them. If you lease premises, be sure to check whether you or the landlord is responsible for insuring the building.

Material damage

Depending on your type of business you may need to insure your office contents, stock and machinery. Cover can either include or extend to include accidental damage, and usually protects you against fire, theft, storm and flood. Cover can usually be extended to include computer breakdown. It is surprising how many items you need to cover, and at what cumulative value.

Business Interruption

Following a fire, for example, you may have to move to other premises while your own are being repaired and also rent equipment. Business interruption insurance protects against loss of income or profit and/or additional expenses for increased cost of working. You can extend cover to include the cost of reinstating data following loss or damage.

Deterioration of Stock

If you sell food, or other perishable goods, you could suffer loss should your refrigeration equipment break down. To protect against this, you would need to take out deterioration of stock cover.

Portable Equipment

Portable equipment insurance covers items such as mobile phones and laptops against fire, theft and accidental damage. The important difference here is that equipment is covered off your normal business premises.

Goods in Transit

Many businesses have to deliver or transport their goods, at which time they may be vulnerable to damage, loss or theft. However, most UK hauliers limit their liability to the weight rather than the value of goods carried. So, you may want to protect the full value of the goods you are sending. Goods in transit insurance is for goods carried by a road haulier, courier, by post and in your own vehicle.

Business Money

This covers loss of cash or cheques either from your premises or in transit. For example, you may have more than one premises and move items between them.

Your liabilities and expenses

The following types of insurance can provide compensation for you if you suffer financial loss or damage, and provide protection should legal action be taken against you.

Legal Expenses

You can now take out commercial legal expenses cover to pursue or defend legal actions such as property disputes. Some policies are more comprehensive than others, so check the small print, particularly exclusions. Good policies also include costs incurred in employment disputes, tax audits, investigations and tribunals.

The cost depends on the size of your business and what you want to cover.

Credit Insurance

A string of small debts could cripple your business; one large bad debt could ruin it.

Credit insurance can cover both commercial and political risks – the latter is an important consideration, particularly for exporters. However, this type of insurance is usually only available to larger businesses.

Intellectual Property Protection insurance

Often one of a business’s biggest assets is its intellectual property – its designs, inventions, creations and branding. In theory, copyright, trademarks and patents protect these. However, these are only of any use if you can afford to enforce them. So, for example, getting an invention patented is only half the battle. Many inventors have lost control of their patents because they could not afford the cost of defending them. Patent protection cover will help mitigate the costs of such a defence, and the earlier you put this in place, the cheaper it is. Your patent agent should be able to recommend suitable policies.

Public Liability

One of the standard risks covered by a business policy is public liability. This covers you for any accidental injury you cause to others or physical damage to their property. It also covers visitors injuring themselves on your premises. It is important to have this cover even if you work from home, and even if you normally meet business people elsewhere. If, say, a client drops by unexpectedly and trips over your carpet, they could sue you for damages. Therefore, this insurance is really a must.

Product Liability

If you manufacture or supply goods, there is always the possibility your product could cause damage to third-party property, or someone could be injured because of a defect in your product. Unfortunately, a small defect in an inexpensive item can sometimes have catastrophic consequential results. So it is vital to have appropriate product liability cover.

Professional Indemnity

If you sell knowledge or skills, you could face enormous claims should something, however unlikely, arise later because your work was negligent or mistaken. It may be hard to imagine a situation where you might be liable for hundred of thousands of pounds. However, the overall effects of a small mistake on a large project could be out of all proportion to your contribution.

Professional indemnity insurance is important for professionals offering a service or advice, such as architects, accountants, solicitors, and consultants of most types. Indeed, it is fast becoming a necessity for professionals, since more and more clients are demanding it as part of the contract.

Note that, quite unlike most other insurance, professional indemnity insurance cover is required for when a claim is made, not for when the mistake was made. So you could expose yourself to future claims if you cancel a policy when you cease trading or retire. However, in some cases you can buy a residual policy to cover you in retirement.

Cyber Liability

The Internet is a fast-changing environment that is fraught with legal dangers both by and against you. So if you run a significant Web operation, it would be wise to investigate getting cyber liability cover to protect you against claims for things such as breach of copyright, libel, slander, fraud and breaches of the Data Protection Act.

Contractors All Risks Insurance

Anyone involved in contract work, typically builders, would be wise to get contractors all risks cover to protect themselves against consequential damage – for instance, if sparks from welding result in the whole building burning down.

Directors’ Insurance

Although directors are responsible for making sure the company complies with the law, they become personally liable if there is fraud, or in some cases, negligence. Directors can be found individually liable if they are personally negligent. This means they are not protected by a company’s limited liability.
Directors’ or officers’ liability insurance protects directors against most forms of civil action taken against them, including breach of fiduciary duty and breach of trust. However, double-check the exclusions on the policy.

If a company takes out this type of insurance on behalf of its directors, this must be noted in its annual report.

Personal protection for you and your staff

Protecting your business is one matter; just as important is protecting key players. This section covers insurance to give you added personal protection should the worst happen to any of them.

Creditor Insurance

Creditor insurance protects a lender if you can’t meet your loan, overdraft or hire purchase repayments. This could be due to accident or sickness or death. In some cases critical illness cover may be included, which provides a lump sum repayment in the event of conditions such as cancer. Many policies can cover employees who are crucial to the running of your business.

Partnership Protection/Shareholder Share Purchase/Key Person Assurance

In a partnership or limited company, if one of the partners/shareholders dies or suffers a critical illness, the other partners/shareholders are often financially vulnerable. For example, they may have to find the money in a hurry to buy out the deceased person’s share from their spouse. A wise precaution, therefore, may be for partners/shareholders to take out life and/or critical illness assurance on each other to provide a fund to buy out the other’s share on their death or critical illness. This should be reviewed regularly as the business expands.

Similar insurance could provide a sum of money to be used by the business after losing a key person due to death or critical illness to cover the cost of training a replacement person.

Permanent Health Insurance

Sometimes called an income protection plan, this is a long-term assurance that provides a replacement income if you become unable to work due to an accident or illness or need an operation. The insurer usually pays benefits until you return to work, reach retirement age or die. But do check out the different policies, as some will only pay out for a limited period of time.

Critical Illness Insurance

Critical illness insurance is designed to pay out a lump sum if you suffer an illness such as cancer, a stroke or a heart attack that is not fatal and can be used to protect a partnership or key person. With this type of insurance, it is very important to check the small print, especially in relation to previous illnesses. This cover can be usually an extra option on term assurance policies.

Private medical insurance

Even if you don’t offer this to your employees, it may be critical for you to have such cover as it gives you the reassurance that in the event of an illness, you can choose when and where to have treatment. This should help you better manage your absence.

In summary

It is not worth skimping on insurance. It may be a small price to pay for peace of mind. Whatever insurances you intend to take out, make sure you fully understand the terms and conditions and be sure to disclose everything – or you could find your cover is not valid.

Useful contacts

• Health and Safety Executive

  T: 0845 345 0055
  W: www.hse.gov.uk

• Association of British Insurers

  T: 020 7600 3333
  W: www.abi.org.uk

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