Business insurance: the basics


Getting the right insurance is essential for any new business.

You’re legally required to have some types of cover – such as motor insurance for company and personal vehicles or employers’ liability compulsory insurance if you have staff.

It’s a sensible business decision to insure your premises, fixtures, fittings, equipment and stock against disasters such as fire, flood and theft which could prove highly damaging to your operations.

Some businesses may also want to consider insuring against legal liabilities and buying life and health cover for staff.

This guide sets out the insurance required by law and the other types of cover a new business may require. It also explains how to get advice from a broker and gives details of insurance for homeworkers.

The purpose of insurance

Insurance is a contract in which an insurer promises to pay the insured party a sum of money if one or more specified events occurs in the future, in return for regular small payments – known as premiums. It reduces your business’ exposure to the effects of particular risks. These could include:

  • damage to, or the loss of, physical assets such as your premises or equipment
  • illness or death of key members of staff
  • compensation claims against the business or its directors by employees or customers
  • business interruption caused by external events such as terrorism
  • volatility and cash flow pressures following an incident

Almost all businesses buy insurance, but the type and amount of cover purchased will vary according to the particular risks your business is exposed to and how much risk you are willing to personally bear.

Your business is legally obliged to buy certain insurances, such as employers’ liability. For more information, see the page in nibusinessinfo’s guide on insurance you must have by law. Unless you are obliged or required to buy a particular insurance, it is up to you to decide whether to buy it and what limit of indemnity (protection) is appropriate.

Get the right insurance for your business needs

New businesses are likely to require a number of different types of insurance. Some are compulsory:

  • employers’ liability insurance cover – worth at least £5 million – for most types of employees
  • motor insurance if your business uses vehicles on the road or other public places
  • professional indemnity insurance for businesses in professions such as law and accountancy

Other types of insurance your business may require include:

  • buildings and contents insurance
  • equipment insurance
  • key person insurance and health insurance for the owner-manager
  • life and health insurance for employees
  • directors’ and officers’ liability insurance
  • business continuity or business interruption insurance
  • public liability insurance
  • product liability insurance
  • goods in transit insurance
  • credit insurance
  • fidelity insurance – which protects against dishonesty or theft by staff
  • travel insurance
  • legal expenses insurance
  • money policies

You can read about business insurance on the Association of British Insurers (ABI) website.

It’s important to monitor your level of insurance cover as your business develops. Schedule an annual review to consider how your needs have changed. Weigh up the cost of the premiums against the level of risk you’re running.

Using brokers

An independent insurance broker can help you select the right level of cover, assess which risks pose the greatest threat and find the best deal.

Find an insurance broker on the British Insurance Brokers’ Association (BIBA) website, or search for an insurance broker on the Institute of Insurance Brokers (IIB) website.

Some brokers charge a fee for their services but most obtain payment from the insurance companies they tell you about. If you purchase products or services from insurance intermediaries, you have the right to ask how much commission they receive for selling the product or service to you.

Although you can buy cover directly from insurance companies, it’s generally best to use a broker, as they can provide advice and assess your insurance needs. If you choose to deal directly with an insurer, check they are a member of the ABI. Consult member listings on the ABI website.

It is also worth asking your broker what Professional Indemnity or Errors and Omissions insurance they have in place themselves, in case an error by them leads to you not having the right coverage when you claim.

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