Businesses of all sizes face many kinds of risk, from cashflow and bankruptcy to asset loss and being sued. Fortunately, many risks can be protected against through the use of business insurance.
This article will aim to explain five main types of cover a small business should consider buying. For more information see the small business insurance guide at NimbleFins, where you can also get business insurance quotes.
What type of insurance is required for a small business?
Legally speaking, there is only one type of insurance required for most small businesses: employers’ liability. Employers’ liability insurance is required by law in most cases when a business hires an employee. There are a few exceptions to needing employers’ liability when hiring someone, such as hiring an independent contractor or self-employed individual who is not classed as an employee for insurance purposes.
There are other types of cover a small business will want to consider as well. A small business with any physical assets to speak of will want property insurance. For example, a small business owning their business premises will want a commercial buildings insurance policy to protect the building against damage from risks like fire, flood and theft. Similarly, a business contents insurance policy can protect items owned by the business such as business equipment, inventory, stock, raw materials, finished goods and more.
Most small businesses will also need a public and product liability insurance policy. Public liability insurance protects against a business being sued when a third party like a customer or member of the public is injured or their property damaged. For example, a customer slipping on a wet floor in a restaurant. Product liability is often sold together with public liability and protects against claims that a product designed, made or sold by a small business caused injury or damage. For example, a child’s toy becoming a choking hazard.
Professional indemnity insurance is important for any business that sells professional advice or service, such as an architecture, design or consulting firm. This protects against situation where poor or negligent professional advice or service results in a financial loss for a client. Some trade bodies impose minimum professional indemnity requirements on their members, so it’s always worth checking these.
Business indemnity cover protects you against claims of negligence or mistakes while rendering professional services. For example, a software developer creates a program for a client that contains a coding error that results in the client losing thousands of customers and its company’s integrity.
Cyber insurance is critical for any company that stores sensitive customer information, processes payment card information or would be hindered by a hack, data breach or virus. This type of insurance not only covers losses due to an attack but also gives a business access to professionals who can deal with the situation, to help prevent a situation from deteriorating further.
Legal insurance is also important for a small business to cover any legal disputes. Legal expenses cover can protect against contract disputes with employees or vendors, HMRC tax investigations, health and safety inspections, debt recovery and more.
What is liability insurance for a small business?
In most cases, liability insurance for a small business refers to public and product liability. These protect against claims that your business is responsible for an injury to a third party or damage to their property. As discussed above, public liability covers accidental injury or damage; product liability covers injury or damage caused by a product.
However, any business with employees or staff will also need employers’ liability insurance, and any business getting paid for providing professional advice or service will want (or need) professional indemnity insurance.
How much is liability insurance for a small business UK?
Public and product liability together cost around £118 a year on average in the UK. However, prices can start from as little as £50 a year for less risky businesses, rising to hundreds of pounds or more for more risky businesses. What is a risky business? For example, a tutor, DJ or dog walking business typically pays towards the low end of the range, while a construction company or landscaping company would pay towards the top end.
Why do prices vary by industry? It’s a matter of risk to the insurer. A client or member of the public is more likely to get hurt visiting a construction site than visiting a tutoring business.
The same holds for the cost of employers’ liability for a small business. While employers’ liability costs start from around £60 per employee for an office worker, a business could easily pay more than £200 per employee working in a trade.
How much is property insurance for a small business?
Property insurance for a small business costs roughly £400 a year assuming a £500k building rebuild cost, with contents cover starting from just over £100 a year. However, prices will vary considerably according to the factors of your insurance application. For example, small business contents cover will depend on the value of your stock, business equipment, inventory, furniture and other items you’re insuring against fire, flood and theft.
In Summary
Each small business will have its own unique set of risks and will have different insurance needs. There also may be other types of insurance to consider in addition to those mentioned here, but these are the most common types for a small business to buy. When setting up a new small business, be sure to investigate the different types of insurance that are available to ensure you’re covered on all fronts.
