10 February 2020
The costs of not getting the right insurance can be pretty high for small businesses. With this in mind, this guide will cover the required and recommended forms of insurance for small businesses, taking a look at the benefits and costs of each type.
Some types of insurance for small business are either essential or legally required. We’ll run through some examples, starting off with the most general insurance and moving towards more context-specific insurance policies.
Employers’ liability insurance is the only type of insurance that is a legal requirement for all private firms that employ at least one worker in the UK.
If any of your employees get ill or injured on the job, this form of insurance has got you covered. Your individual policy will vary, but it should provide you at least £5 million in cover if you need to compensate employees for medical or legal care, as well as their loss of income.
As you can probably imagine, employers’ liability insurance is a big deal in the eyes of the law. The punishment for not having this type of insurance is pretty awful: for every day that you’re not insured, you could be fined £2,500.
Avoiding the hefty £2,500 per day fine for failing to have employers’ liability insurance.
The cost of employers’ liability insurance depends on your business type, the number of employees at your firm, and the level of cover you take out. By taking measures to increase the safety of your employees and reducing the likelihood of a payout, you can reduce the cost of your insurance policy.
To give an example of the price, a standard combined £10,000,000 cover employers’ liability and £5,000,000 cover professional indemnity policy for a management consultancy firm would set you back just over £500 per year.
One of the most common forms of insurance for any business, public liability insurance is a must-have for many small firms. Whilst not strictly speaking a legal requirement, you’d be foolish not to at least see if it’s applicable to your business. The financial cost of not having public liability insurance is too great to ignore.
If you have members of the public visit your business premises or you work in other people’s homes, then you definitely need to look into public liability insurance. It covers your legal costs and helps with compensation if a third party or their property come to harm, whether at your place of work or their home.
Whatever industry you work in, there will be generally accepted standards for the level of cover you should buy. As you can imagine, the amount of cover you need is related to the potential for damaging property or injuring members of the public in your line of work.
Protecting your business from being sued by members of the public, ensuring its financial security should they or their property come to harm.
The average cost of public liability insurance in the UK is £119.37 per year. However, this figure could be as low as £40 for small businesses that are less likely to cause damage to third parties or their belongings.
Professional indemnity (PI) insurance is not legally required for all small businesses but is mandatory if you belong to certain professional bodies in the UK – accountancy and architecture are examples of professions that require this type of insurance.
Say you work in a business that advises people, provides clients with a service, or designs stuff for people. We’re sure that you always provide an excellent service. If the work you do inadvertently results in your client losing cash, however, you could be sued for professional negligence.
This is where PI insurance comes in. It covers you for your legal costs in the event that you are sued as a result of your actions whilst carrying out work for a client. PI insurance can protect you against professional negligence, breach of confidentiality, unintentional copyright infringement, and other cases that could arise from inadequate service provision.
Thinking about the type of protection that PI insurance provides, you can imagine which small businesses would benefit from it (even if it’s not a requirement for them). PI policies are advisable for management consultants, IT professionals, engineering contractors, designers, and other businesses that could cause serious financial loss if they make mistakes at work.
As with public liability insurance, the level of PI insurance that’s right for you depends on the nature of the projects you work on. For example, as an engineering contractor working on major projects, it may be worth investing pretty heavily in PI insurance as inadequate engineering could have drastic consequences.
Preventing any nasty financial shocks when it comes to clients taking legal action against you for inadequate service provision.
It’s difficult to come up with an average cost of PI insurance due to the wide range of factors that can impact the price. Whilst quotes start from £100 per year, the cost will depend on your company’s level of cover, number of employees, annual turnover, and any industry-related risks.
You might see this as an obvious point to make, but it’s a legal requirement to have insurance on your company vehicles. The only real decision to make is whether you go for third-party or comprehensive insurance. Given that employees probably won’t look after your vehicles as well as they would with their own, you’re better off opting for a fully comprehensive package.
Protecting you and your employees from penalties for driving without insurance. Your employees could reasonably claim plausible deniability, meaning that you’ll likely end up paying the fine of up to £300. If you’re super unlucky, the police could also seize the company vehicle.
The cost of business car insurance tends to be higher than personal car insurance. Insurers assume that business cars will travel more miles and that employees on business trips may be unfamiliar with the areas they are driving in. As with your own car insurance, however, the cost depends on the type of vehicle being driven and how it’s being used for the business.
Some types of small business insurance aren’t legal or industry body requirements, but we’d really recommend that you look into them. Again, we’ll begin with the most generally applicable types of insurance and then consider those which are more relevant to particular industries.
It’s likely that you won’t have heard of key person insurance before, but that doesn’t make it any less important for your business. Most small businesses employ at least one person who is pretty much indispensable to the firm, whether they’re the head of a department or a crucial member of IT staff. But what happens to your business if that employee becomes ill or passes away?
Key personal insurance protects your company against the loss of revenue that could occur should an essential member of staff become unable to work. It’s a form of life assurance and critical illness policy that will pay out a sum of cash to help your business recover whilst you’re looking for a new member of staff.
Losing a key employee can be seriously damaging to a small business. Key person insurance will ensure that the firm doesn’t come to a standstill under such circumstances. If the company does suffer drastic losses as a result of the loss of an indispensable member of staff, this insurance will help it to bounce back.
The cost of key person insurance is entirely dependent on the individual you’re looking to cover – insurers will want to know how much profit your business currently makes per year and what proportion of this you’d attribute to the key person.
As a director or high-level officer in a small business, you’ll know that the decisions you make can be really influential. Some well-intentioned actions can backfire and have a negative effect on the business. Although your liability is restricted in a limited company, shareholders, investors, and regulatory bodies sometimes make legal cases against individual employees.
Directors’ and officers’ (D&O) insurance protects you in these circumstances. Taking out a policy of this kind will give you a financial payout that can help you to fight any legal case that is made against you.
Even the most well-meaning directors and officers sometimes make mistakes. D&O insurance can provide you with the necessary funds to protect yourself in any legal battle that ensues.
It’s impossible to give an average cost for D&O insurance in the UK due to the number of factors involved. Insurers will look at the size of your business, the length of your employment there, and the industry it operates in to calculate the cost.
This is applicable to businesses that manufacture, sell, or fix products. Small businesses sometimes get sued when products turn out to be defective. Product liability insurance will cover the legal and compensation-related costs that arise under these circumstances.
Your small business could potentially be ruined by a legal case related to a product defect. Product liability insurance will provide you with the funds you need to turn the situation around in the unlikely event that a defective product results in you being sued.
Product liability insurance can be as cheap as £50 a year. Factors that affect the price of this insurance are your business sector, turnover, number of staff, and the range of locations in which your business carries out contracts.
Having read this post, you’ve probably come across several forms of insurance that relate to your small business. Whether these types of cover are a requirement or just recommended, it’s worth getting your firm covered to avoid any nasty shocks. This is particularly relevant for smaller companies that may not have the financial resources to recover from a legal battle on their own.
Hopefully this article has informed you about the need for small business insurance and the types of insurance that your business may need. If you’re looking for a new workspace, from offices to workshops, BizSpace has got you covered with a wide range of spaces and flexible renting options on offer.