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How much insurance does a small business need?

With so much on your plate when setting up a new small business, it may be tempting to put insurance near the bottom of your to-do list as a low priority. However, it’s a truly essential consideration, and definitely not something that can be put on the back burner. By having insurance in place, your company will be protected against risks such as property damage and legal action. What’s more, you may be required by law to have particular covers in place.

Every small business is different, so your insurance needs are specific to your own company — you don’t want to spend more money on cover than you’d actually benefit from. Fortunately, deciding how much insurance you need isn’t as daunting as it may seem. We’ve created this easy-to-follow guide on the types of new business insurance you could require, so you can decide what you need to keep your company safe.

Our expert advisors are on hand to answer any questions you may have, so please don’t hesitate to get in contact with us for a free business insurance quote.

What insurance is legally required?

By law, there are some specific covers your business will need, without which you could be heavily penalised by the authorities, putting your entire operation at risk. As well as being legal requirements, these covers are undoubtedly useful, and can cushion your company from any nasty financial shocks. Some examples include:

Employer’s liability insurance

Employer’s liability insurance covers the costs of compensation claims made against you by your employees if they sustain a personal injury or their property is damaged in the workplace. It is a legal requirement if you employ anyone, even on a temporary or part-time basis.

Motor vehicle insurance

If you operate company vehicles, you need third party motor vehicle insurance in accordance with The Road Traffic Act 1988, though fully comprehensive cover is preferable. The former protects you if you are responsible for a road traffic accident, leading to a compensation claim being made against you by a third party, while the latter also covers theft or damage to your own vehicle. If you’re driving an uninsured vehicle, you could face a fine, receive points on your driving licence, or even have your vehicle confiscated.

What insurance do I need as a small business?

There are all sorts of insurance cover; some essential and some less so. Remember that you’ll have to pay the costs of any work-related accidents and incidents yourself if you’re not insured, so think about how far your savings will go. Here at the main insurance categories you should consider:

Liability insurance

Liability insurance protects your business against compensation claims made against it, and any associated legal costs which may ensue. One type of liability policy you may need is public liability insurance, which covers you if a compensation claim is made by someone who isn’t a member of your staff. While public liability insurance is not technically required by law, some clients may only work with you if you have it in place, so you might need a policy in order to sign legally-binding contracts.

Other examples of liability insurance include financial loss cover and product liability insurance, both of which are crucial forms of protection to have in place. For instance, a single case brought against your company by someone who has suffered a serious injury from a product you sold them could easily set you back £250,000. and as claims can be expensive and difficult to settle, having cover in place can save your business entirely.

Here at Tradesman Saver, we also offer insurance that’s tailored towards specific professions and jobs, and includes liability cover as standard, such as roofing insurance, builders insurance and contract works insurance, to provide bespoke protection designed especially for individual businesses.

Property insurance

This covers you if any of your business’s property is damaged or stolen, which is essential if you rely on a range of items to run your company. Of course, if this isn’t the case, you may not require this cover, but you may be surprised how much your business contents are worth when you add up their total value, so be sure to conduct a valuation before deciding whether or not it will be cost-effective. More specific examples of this type of cover include toolscontents and plant insurance. Respectively, these cover technical equipment (like hammers and drills,) business items (such as PCs, desks and furniture), and construction equipment (including concrete mixers, forklifts and cranes).

Personal accident and sickness insurance

Having personal accident and sickness insurance means you’ll continue to receive an income if you can’t work due to injury or illness. Being out of work for a sustained period of time could even stop your business from being able to trade altogether, setting it back financially, and perhaps even putting its future at risk — especially if you work alone. But with personal accident and sickness insurance in place, your business activities can continue, as you can use the cover to fund medical expenses, and training and recruiting any staff to take your place. It can also pay for personal costs you’d struggle to make without a regular income, making it especially significant for self-employed individuals who aren’t entitled to statutory sick pay.

How do policy limits affect insurance costs?

An insurance policy limit refers to the maximum amount of money a company will pay for a covered claim. The higher the limit you choose, the more you’ll have to pay for it. However, a higher limit may be mandatory in certain circumstances — for example, property insurance policies typically contain something called the “average clause”, which penalises anyone who underinsures. This means you must declare the full value of your business property and possessions, which will ensure you get sufficient cover.

Many liability insurance policies contain high indemnity limits — usually up to £1 million. Though that might sound like a huge amount of money, some compensation claims can be incredibly expensive to settle, particularly when the legal fees and associated costs are factored in. As such, you might be contractually obligated to buy a higher limit. It is also worth considering higher indemnity limits if you’re working in riskier environments (such as builders, roof tilers and scaffolders, as well as in situations where more people may be passing by, and jobs which make use of expensive equipment.

Darragh Timlin

With over 25 years’ experience, Darragh is an expert in all things insurance. Starting his career in commercial property underwriting, Darragh has worked for a number of global insurers and is now Managing Director of Tradesman Saver, part of the wider Henry Seymour Group.

All articles by Darragh Timlin

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