If you’re running a small business, you’ll know that you need to protect yourself against unexpected losses. Your property could be damaged or stolen. People could claim compensation from you.
But insurance costs money and you don’t want to be spending money on insurance you don’t need. So, how much insurance is actually necessary?
Different types of cover
There are various different types of insurance cover. Although some of these will be essential for you to have, some might not be quite so important, particularly if you having savings so you could cover the cost of a small claim if you had to do that to get your business back up and running.
Property insurance covers you if your business property is accidentally damaged or stolen. If you’ve got a lot of business property, this will be essential. You might not need this if you don’t have much business property, although it can be surprising to find out how much it is worth when you add up the values of all of your items, particularly when you include the value of the computer equipment you use to run your business.
Liability insurance covers any compensation claims that are made against you. As we as covering any compensation awards and any associated costs and expenses, your liability insurer will also defend any claims on your behalf so as long as you have liability insurance you won’t have to worry about dealing with potentially complicated legal arguments.
You need this because claims can be expensive and difficult to settle. A compensation claim from someone who has suffered a serious injury could easily cover over £250,000 to settle. You should also make sure you have a financial loss cover extension because otherwise, you could be uninsured if a compensation claim for a purely economic loss is made against you.
Personal accident and sickness insurance covers your income if you can’t work because you’ve been injured or are ill. You need this because if you’re self-employed, you can’t get sick pay.
Legal expenses insurance protects you if you become involved in legal action. This covers the legal costs but importantly, your legal expenses insurer will also help you handle the legal action so you need this type of insurance.
Some types of insurance cover are required by law.
Employer’s liability insurance covers compensation claims made against you by your employees. It is a legal requirement if you employ anyone, even if you only employ people on a temporary, part-time or casual basis. Motor insurance is also a legal requirement if you use a motor vehicle.
Public liability insurance is similar to employer’s liability insurance but it covers you if the compensation claim is made by someone who isn’t an employee. This type of insurance is not legally required but you might need it contractually.
A property insurance policy will details the “sums insured” which are the maximum amounts that an insurer will pay in the event of a claim. But it’s not quite as simple as that.
Property insurance policies contain something called the “average clause” which penalises anyone who underinsures, so you should make sure that you declare the full value of your business property.
Public liability insurance policies contain an indemnity limit. This is also the maximum that the insurer will pay in the event of a claim, and the standard indemnity limit is usually £1,000,000.
That might sound like a huge amount of money, but some compensation claims can be expensive to settle, particularly when the legal fees and associated costs and expenses are factored in. As such, you might be contractually obliged to buy a higher limit. It is also worth considering higher indemnity limits if you’re working in expensive locations such as shopping malls where an accidental fire could result in substantial damage.
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