Understanding small business insurance in the UK

If you’re starting your own business in the UK, you’re probably aware of the importance of taking out insurance.

In this article, we’ll briefly explain what small business insurance is and why you need it, then take a look at the different types of insurance you might choose.

What is small business insurance?

Business insurance is exactly what it sounds like: insurance that protects your business.

While small business insurance isn’t a specific concept, it too is exactly what it sounds like: any type of business insurance that is especially useful for small businesses.

Different types of business insurance will protect you against circumstances such as:

• theft of equipment

• lawsuits 

• business interruptions 

• damaged property or stock

You might need specific types of insurance dependent on which sector you work in, while some types of insurance are mandatory – employers’ liability insurance if you employ any staff, for instance, or insurance for any vehicles you use for your business.

Do I need small business insurance?

As we noted, having business insurance is a legal responsibility in some cases. But even those who don’t strictly need to have it should still look into getting business insurance. No matter what type of work you do or what business structure you use, you can always make mistakes, and having coverage to help cope with those can be the difference between success and failure.

Types of small business insurance

1. Public liability

Public liability insurance covers you if you injure a member of the public or damage their property.

For instance, it would protect you in the following circumstances.

• A food item you sell makes someone ill. 

• Building works you’re carrying out cause damage to a neighbouring property. 

• A customer slips on a wet floor in your shop or office, injuring themselves.

Costs in these situations can be astronomical, and public liability insurance can be crucial to avoiding bankruptcy.

While the specifics will differ among providers and policies, public liability insurance will usually cover things like compensation to any injured parties, repairs or replacements for damaged goods and medical fees. 

Organisations such as local authorities and trade associations may also require you to be covered before dealing with you.

2. Professional indemnity

Professional indemnity insurance protects you against the costs of a client seeking compensation for bad services, work or advice.

Especially useful to businesses that give advice and provide services to clients, this insurance will cover any costs you might incur if your work is deemed negligent. 

Circumstances covered by professional indemnity insurance include:

• injury to clients or damage to their property 

• breach of confidentiality, copyright infringement and loss of or damage to goods or information 

• defamation

Again, professional indemnity insurance is not a legal requirement, but in many cases prospective clients will require you to show proof of coverage before they do business with you.

Professions such as solicitors, architects, construction workers, engineers and accountants will also need professional indemnity cover before they can join their professional bodies.

3. Employers’ liability

Designed to protect employers against the cost of compensation claims, employers’ liability insurance covers you if your workers are injured in the workplace or become ill as a result of working for you.

Employers’ liability insurance is a legal requirement if you have any employees, including part-time workers, volunteers, temporary staff and students, even if they only work for you as part of their work experience.

4. Buildings cover

Just as you’d insure your home against things like floods or fire, so you should insure your work premises against the same eventualities.

While it’s not legally required, buildings cover will be crucial to recovering from disaster, enabling you to cover the cost of repairs and get back on your feet.

Note: many buildings insurance policies will also cover items considered part of your building – things like burglar alarms and boilers, for instance.

5. Contents and stock

Contents and stock cover is essential for any business that supplies goods or relies on particular pieces of equipment to function.

This can include specialised items, such as a web designer’s computer, a graphic designer’s tablet or a carpenter’s tools. But it can also cover more commonplace items that might be essential to your business – shop tills or office furniture, for instance.

In addition, it protects any stock you have, whether it be finished goods or raw materials.

In general, your items will be covered against events such as:

• theft 

• malicious damage 

• riot or civil commotion 

• fire 

6. Business interruption

Business interruption insurance covers any interruptions to your business that mean you can’t trade for a period of time or that cause you to lose projected earnings.

Examples include the following scenarios.

• If a main supplier or customer suffers damage to their premises and can’t trade, a business interruption policy can help offset the loss of business you suffer as a result.

• If your premises become unusable due to an insured event such as a floor or a fire, you’ll be covered for any losses you incur while you’re waiting on repairs.

• If key equipment is damaged or stolen and you can’t trade, your losses will be covered.

While buildings, contents and stock insurance covers the cost of repairing or replacing the items themselves, business interruption insurance covers the losses of trade you incur as a result of the damage or loss. Whether losses incurred as a result of the coronavirus pandemic are covered by business interruption insurance depends on your policy.

7. Theft of takings

Especially relevant if you hold or transport large amounts of cash, theft of takings insurance covers you from profits stolen from a safe, in transit or while you’re working at other premises.

8. Cyber cover

As you might guess, cyber cover is insurance designed to protect you against the costs of cybercrime.

Cybersecurity is of course crucial: prevention is always better than cure. But even the best security systems can be overcome. All it can sometimes take is a rapid development in a key area, or even just one enterprising criminal noticing a way in that everyone else missed.

If this happens, cyber cover ensures you won’t be left picking up the cost.

The best cyber cover policies don’t only cover any costs you might incur, but also help you recover in other areas.

For instance, a cyber cover policy might:

• give you access to technical experts to help fix IT issues, helping to guard against similar attacks in the future 

• cover the cost of restoring your data and systems to working order 

• handle the reporting requirements, informing the data privacy regulator and any relevant third parties 

• provide public relations and crisis management teams to help you recover your reputation

With all this covered, a good cyber insurance policy can be a godsend – especially for any business that handles sensitive customer data or processes lots of payments online.

9. Legal expenses

Finally, legal expenses insurance will cover you against the potential costs of lawsuits and other legal disputes. This is especially useful if your business is likely to deal with specialist areas of law or lengthy cases.

Take all the right steps in starting your own business

As you can see, there’s a huge range of things that could go wrong – and a huge variety of insurance policies to cover you in the event that they do. To make sure you’ve taken all the necessary steps to starting your own business in the UK, fill out this questionnaire and get a personalised list of next steps sent straight to your inbox.