Business Insurance: What do I need? A beginners' guide
Starting your own business can be exciting, thrilling and downright daunting. It doesn’t matter how old or experienced you are; it’s scary.
Uncertainty and doubt are understandable feelings to have as you’re about to launch your new venture. You want to be a success, not just for yourself, but for your family, friends, employers and investors.
At a time when you’re focusing on getting your business up and running, it can be tough to think about something going wrong. However, the sooner you get your business insurance sorted, the more time and effort you can dedicate to your business knowing that if the worst happens, you’re covered.
Very often the reason for business owners not buying insurance in the early days is that they don't understand what they need. But business insurance is probably a lot less complicated than you think.
To help you grasp the main types of cover available and why you might need them, here is a handy beginners’ guide to business insurance.
Regardless of what type of business you run, how big it is or where it’s located, business insurance offers an invaluable safety harness in case something goes wrong.
The type of insurance that you need depends on several factors. It's important not to fall into the trap of thinking that your business is too small to need insurance. You may be a start-up business, but you could require the same type of cover as a much larger company.
It’s a misconception that business insurance has to be expensive. Most small and medium-sized enterprises only require a couple of cover types which is much more affordable than trying to put your business back together if disaster strikes.
The price you pay for business insurance may depend on:
- The type of business you run
- Your annual turnover
- How many members of staff you employ
- The size of your business premises
- The level of cover you need
This is not an exhaustive list and there may be other factors which influence your insurance premium.
Essentially, you need insurance to protect three things; your customers, your employees, and your business. You may need to safeguard only one, or all, of these vital elements of your business.
Here is some more information about the main covers you’ll need to protect the business you’re working so hard to build.
Customers are the lifeblood of every business. Without them, your company will fail to be a success and so public liability insurance could be the most critical cover you buy.
What is public liability?
Public liability insurance may cover your legal liability to pay compensation to members of the public if they’re injured, or their property or belongings are damaged, as a result of your business.
It can be easy to think that the unimaginable will never happen to you and that you're far too careful about the well-being of your customers to be affected by your work. The truth is, accidents can and do happen; even to the most cautious of business owners.
How does it protect your customers?
If a customer, visitor or any other member of the public has their possessions or suffer some kind of injury as a result of your business, you have a responsibility to provide compensation.
Due to the nature of public liability claims, the cost of compensating loss of income and medical expenses, as well as funding the legal fees associated with defending the claim, can be substantial.
Without taking suitable precautions and having the appropriate insurance in place, you risk the safety of your customers, and your business could be financially ruined.
Whatever the cost of public liability insurance it will almost definitely be less expensive than having to pay out if the worst happens. But how much cover do you need? Most insurers offer between £1 million and £10 million of public liability insurance. The cover you need will vary depending on what type of work you do and the amount of compensation that could be claimed if something goes wrong.
Do you need to have it by law?
Even though having public liability insurance isn’t a legal requirement, there are very few businesses that can safely operate without it. As a business owner you have an ethical duty to be in a position to compensate customers should they suffer loss as a result of your business.
You may even find that potential customers insist that you purchase the relevant level of public liability cover before they’ll consider putting work your way. A local council, for example, may request proof of cover before they’ll award a contract.
In any size business, it’s the owners’ responsibility to look after their employees. As the boss, you have a duty of care to ensure that the health and safety of your workforce is a priority and to put things right if they don’t go to plan. Employers’ liability insurance can help you do this.
What is employers’ liability insurance?
This compulsory cover provides compensation for your employees (including you if you’re an employee in your own business) in the event of them suffering any injury, illness or disease incurred as a result of working for you.
Regardless of the type of business you run, how many staff members you have or how many safeguards you have in place to protect your workforce, most businesses need to have employers’ liability.
Do you need it?
Employers' liability insurance is a legal requirement for most businesses that employ staff. The Employers’ Liability (Compulsory Insurance) Act 1969 mandates that as soon as an employer hires people to work for them, then they must get employers’ liability insurance.
So if you have staff working for you, you’ll need to get insurance in place. Your employees may even work on a casual or temporary basis but if you’re responsible for their actions and you control when, where and how they work; then you must purchase employers’ liability.
There are some exclusions, however. You don’t need to have employers’ liability insurance in place if any of the following apply to your business:
- It’s a small family run business in which all the employees are close family members.
- The staff you employ work abroad (you should still check the law in the country of the employee’s residence as equivalent cover may be required).
- You’re the only employee (and you own more than 50% of the business).
Public organisations, such as local authorities and health trusts which are financed through public funds, tend to be exempt too.
What are the consequences of not it?
By law, if you employ staff, you need to have at least £5 million of employers’ liability cover with an approved insurer, although all UK insurers offer £10 million as standard. The Health and Safety Executive (HSE) enforce the law and may ask you to show proof of your insurance at any time. If you’re found not to have suitable insurance in place, you can be fined up to £2500 a day suitable.
Even if you have the correct level of employers’ liability in place, you’ll need to make sure you display the certificate of insurance where employees can see it. This can be an electronic copy, but it must be easily accessible for staff. Failure to do so can result in a £1,000 fine.
When you start your own business, your main aim is to deliver a first-class service to your customers. This is why it's hard to imagine a time when any of your customers would be so dissatisfied that they're willing to sue you for damages.
As a professional, this is a risk you face. You share your knowledge and advice with your customers day in day out, and you need to be prepared to pay to correct a mistake if need be. In such cases, professional indemnity insurance may cover the costs of a reputation-damaging dispute with a customer.
What is professional indemnity insurance?
If you give advice for a living, then you’ll probably need professional indemnity insurance. This is because if a customer alleges that you’ve given them inadequate or inaccurate information, the coverage is designed to cover the cost of your legal defence, as well as any compensation paid to the customer.
How will it protect your reputation?
Your reputation can take years to build while your good name can be damaged by one simple mistake. You may be an experienced and skilled professional, but errors can still be made. Having professional indemnity in place can give you the confidence to give advice knowing that you have the insurance to help rectify the situation if an oversight is made.
A professional indemnity insurance policy will cover you against negligence claims, breach of copyright (intentional or accidental), loss of data, as well as accusations of libel or slander. By having the appropriate insurance, you can demonstrate that you're a responsible professional who has put measures in place to provide compensation if required.
How do you know if you need it?
If you’re paid to provide a professional service, then it’s more than likely that you’ll need professional indemnity insurance. It's compulsory for some professions such as accountants and architects and some other industries that are governed by a regulator.
So whether you're a marketing consultant or a personal trainer, it's recommended that you have adequate insurance in place. If you become liable for a claim without insurance, you may be able to build your business back up, but your reputation may be tarnished forever.
Business insurance isn’t one size fits all. There are lots of different covers that fall under the umbrella of business insurance.
There are many other types of cover which can protect your business property, your tools, and your stock. You may even wish to have cover in place to provide you with financial protection to help get you back up and running if your business is disrupted for any reason.
It can be tricky to know what insurance to buy, and how much, but an excellent place to start is by reviewing any contracts you have. These may specify the minimum level of professional indemnity or public liability insurance that you need.
Remember, that just because a minimum amount has been stipulated you should still consider what could happen in the worst case scenario. Due to the risks your business faces, you may decide to pay for a higher level of cover to give you peace of mind. Similarly, a minimum of £5 million employers’ liability insurance is required by law, although all UK insurers offer £10 million as standard.
It's rare that your business will need just one type of insurance cover to protect it against all risks. This is why many insurers sell insurance packages which include all the protection you need. These can generally be tailored to meet the needs of your business as they’re made up of core and optional covers, but they make buying insurance quicker, easier and with just one renewal date to remember.
Insurance covers are subject to the individual terms, conditions and exclusions of the insurer providing them. Always review the policy documentation supplied during the quote process to ensure you have the cover you need.
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