If the worst happened, would your business survive?
If the worst happened, would your business survive?
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What insurance do you need as a small business owner?

As you set up your business, you need to make sure you are prepared should anything go wrong. Having the right insurance is a vital step in this process; not only can it literally save your enterprise, but it is also a legal requirement in many cases.

The two main ways of obtaining an insurance policy are either via a broker or directly from an insurance provider. While the latter route may save money in the short term, you won't benefit from the expertise that an insurance broker can offer, especially one specialising in small business insurance. Whichever avenue you choose, here is a short guide to the various types of insurance you may require.

Determining your insurance needs

The insurance cover you need will depend on the type of business you are running, as the main factors are the business assets you want to protect and how many employees you have. Does your activity involve the sale of goods or services? Is it particularly equipment-intensive and/or dependent on expensive raw materials?

Your own personal situation will also be an important factor, as your needs will vary greatly depending on your age and whether you have any dependents. While single business owners in their twenties might not see the use for life cover, it could be crucial for a craftsman with a few more decades under their belt and children at home.

Employers' Liability Insurance

Every UK business that employs at least one staff member is legally obliged to obtain Employers' liability insurance, as per the Employers’ Liability (Compulsory Insurance) Act 1969. It covers your business in the event that a staff member becomes ill due to their work or is injured on the job, and decides to seek compensation from the company.

Businesses are exempt from this requirement in two cases: when employing relatives in non-limited family businesses, and when employing persons based abroad. In the latter case, you should check those other countries' employment legislation to find out what insurance they require. All other businesses are required to purchase Employers' liability insurance and prominently display a certificate where their employees can read it. The certificate must be kept on file for the next 40 years. Note that employers who are not properly insured can be fined £2,500 for each day without the required coverage.

Buildings and Contents Insurance

Buildings and contents insurance protects your premises, stock and equipment against theft, accident, vandalism and other forms of loss or damage. This one is critical for any business with tools and/or stock, as a successful break-in could be all it takes for your business to be dead in the water. If your business is home-based, your existing home insurance policy might only cover minimal equipment and small amounts of stock. Consult your provider to check whether you are covered when running your business from home; you might see your premiums increase, or you may have to upgrade to a business policy.

You should also make sure your insurance policy will cover business equipment that is taken out of the home, such as tools and measuring instruments, computer equipment and personal electronics such as smartphones, cameras and so on.

Personal Accident Insurance

Protecting yourself should be a priority: if you are self-employed, an accident could be disastrous for your business. You may find yourself unable to work for a while, and may incur specialist medical expenses. Personal accident insurance will offset expenses and lost earnings, helping to keep your business afloat until you're back on your feet.

Unfortunate accidents can always happen – best to be prepared!
Unfortunate accidents can always happen – best to be prepared!

Public liability insurance

This type of insurance protects your business in the event of accidental injury or losses involving a member of the public. As such, it is necessary if members of the public will be coming onto your premises, or if you'll be going to their homes. For example, if you need to set up a ladder on a client's property and they injure themselves by tripping against it, the client might make a compensation claim against your business. Public liability insurance will cover the cost and protect your business.

Professional indemnity insurance

If your business trades in advice and services, professional indemnity insurance will cover you in the event that a client accuses you of negligence, or of giving poor advice, and seeks compensation for damages. Some businesses, such as accountants, financial advisors and lawyers, are required by law to have professional indemnity insurance. Additionally, some clients may prefer a provider with a certain level of professional indemnity insurance so they know they'll be able to recover compensation if an issue arises.

Product liability insurance

If you're selling any type of product, even if you don't make the items yourself, you should take out product liability insurance. This protects you and your business should anyone be injured by something you've sold, or if they suffer property damage (for example, if an electrical fault in an item you sold causes a fire).

Motor insurance

All vehicles used in the context of your business must be properly taxed and insured. You will most likely require individual policies if your business uses one or two vehicles. Fleet cover could be a cost-effective solution starting from just three vehicles. Advantages of going with fleet cover include lower costs and simplifying management: the same policy applies to all vehicles, meaning you pay a single premium and have an easier time making claims whenever appropriate. It can also provide additional flexibility – for instance, by enabling all your vans to be driven by any driver you employ.

The items listed above are just an indication of the various types of insurance you, as a craftsman and entrepreneur, may require in your business. Every business is unique, however, and you may have different needs. Other types of cover include income protection, a long-term insurance which is meant to replace your income should you become incapacitated through injury or illness. Some business owners, especially the self-employed, may also opt for private medical insurance to supplement what the NHS can offer. In all business-related activities, make sure you are safe and that you have appropriate cover for all the possible risks in your professional life.