Starting a business: What insurance do you need?

Each business has slightly different needs, and it’s important to make sure that the risks you face are covered. A good business insurance policy will cover your business in case anything goes wrong and can foot the bill for things like compensation payments and legal costs.

Employers’ liability insurance

The only type of business insurance that’s legally required is employers’ liability insurance. If your business employs anyone then you need at least £5m of cover, and you could be fined a maximum of £2,500 for every day that you don’t have insurance. The legislation makes a few exceptions, for example if you only employ immediate family members.

It’s designed to cover any compensation claims made by your employees for injury or damage that’s caused by their work. For instance if a waiter in your restaurant trips on a loose floorboard and breaks his leg, or if an office worker suffers from repetitive strain injury (RSI) caused by computer work.

Professional indemnity insurance

Another important insurance to consider when you’re starting your business is professional indemnity insurance. This protects you against compensation claims made by a client because they think you’ve made a mistake in your work. This includes things like breaching confidentiality, infringing copyright, or giving advice that causes your client to lose money. This makes it a really important cover for your business if you offer a professional service or provide advice, for example if you’re a graphic designer or a consultant.

Some professional bodies and regulators insist that their members have a professional indemnity policy, including in areas like law, financial advice, accountancy, architecture and healthcare. As an example, if you have a marketing agency and you produce a podcast for a client but you use copyrighted music without permission, the copyright holder could sue your client for copyright infringement. If your client demands compensation from you, your professional indemnity policy could cover any legal costs plus compensation payments.

Public and product liability insurance

Public liability insurance is worth considering if your business comes into contact with the public, either because customers come to your premises or because you visit client premises or work in public. It’s designed to cover compensation claims made by someone who blames injury or damage on your business. For example, if someone’s car is damaged by an object that falls from your scaffolding while you’re doing building work, or if a customer is injured when they slip on a wet floor in your shop.

Product liability insurance protects you if a product that you sell causes injury or damage to a member of the public. For example if you sell a toy that has a manufacturing fault that causes injury to a child, your product liability policy could kick in to pay any compensation claims made by the buyer. As with professional indemnity insurance, public and product liability cover can pay out for the legal costs as well as any compensation payments, up to your policy limit.

If you’ve got a business premises such as a shop or an office, buildings and contents insurance is another consideration. If you rent the space then you’re only responsible for covering your contents (your landlord should cover the building), but if you own your premises then you need to insure the building too.

If you’re running your business from your home then you should check your home insurance policy documents carefully, as business activities may not be covered under a standard home insurance policy.

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