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Small business insurance

You can’t predict the future, but you can make sure you have protection in place for your business by getting the right small business insurance. It means that you’re covered in the event of unforeseen costs and claims, just when you need help the most.

You can’t predict the future, but you can make sure you have protection in place for your business by getting the right small business insurance. It means that you’re covered in the event of unforeseen costs and claims, just when you need help the most.

Written by
Mubina Pirmohamed
Business and landlord insurance expert
Last Updated
24 FEBRUARY 2023
7 min read
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What is small business insurance?

If you run a smaller business, your needs and priorities are probably different from those of a big national chain. If you work with a more bespoke product or service, small business insurance can provide specialist cover that’s tailored to you.

Why do I need small business insurance?

Small business insurance is there to help you deal with any unexpected difficulties your business may face, which ultimately lead to damages or a loss of earnings. With the right cover, small business insurance can help you get back up and running, and could cover any loss of profits if you have to close for a period. It can provide vital protection for small and start-up businesses, where any loss of earnings can seriously impact your company.

What insurance should a small business have?

The types of cover a small business might need include:

  • Public liability insurance – offers financial protection if your business is responsible for injuring a member of the public, or damages their property.
  • Employers’ liability insurance – This could cover you if one of your employees becomes ill or is injured as a result of working for you. If you employ one or more people or are a limited company with multiple directors, it's a legal requirement to have cover. If you're not a limited company, it's not a legal requirement to have employers' liability insurance if the employees are immediate family members, though if a policy is in place it would still cover immediate family members working for you.
  • Professional indemnity insurance – this is designed to protect you against the potential costs of a client seeking compensation from your business, for bad services, work or advice. Although not a legal requirement, many businesses, associations or clients may require you to have this before working with you.
  • Equipment insurance – typically covers tools, machinery and computers.
  • Stock insurance – if you’re dealing in expensive or large amounts of stock, you may want to insure against their theft or damage.
  • Buildings and business contents insurance – just like you’d insure your home, this covers your business property and its contents against flooding, fires and theft.
  • Motor insurance – if your business uses vehicles, you’re legally required to have business car or van insurance.

Top tip

Combining different types of insurance for your business into one umbrella policy can often work out cheaper than taking out separate insurance products.

Do I need to get specific insurance for my business?

Whether you run a guest house, work from a home office or own a restaurant, your business insurance needs will be different. The size of your business may also make a difference. Large businesses may require a higher level of cover, but small and medium enterprises (SMEs) that specialise in a particular or more unusual service/product may need a more tailored policy.

It’s important to assess the risks that face your particular business and choose appropriate insurance. For example, if you’re an accountant or a solicitor, professional indemnity insurance can cover you if clients lose money because of advice you’ve given them. Or if you rely on computer systems, a cyber policy could help cover you for loss, interruption and damages to clients.

Here are some of the examples of the businesses we quote for, each with their own policy options:

Do I need public liability insurance?

Public liability insurance isn’t a legal requirement, but if you deal with customers and clients on a daily basis, it can offer vital protection for your small business.

If someone is injured or their property damaged because of your work, a compensation claim could be financially devastating for your business. Public liability insurance can offer financial protection against legal and compensation costs in the event of a claim against you.

When you consider even a minor claim can cost thousands of pounds, having this cover could mean the difference between your business staying afloat or going under.

It’s worth noting that some organisations, especially local councils, will insist you have public liability insurance before they’ll consider working with you. This type of insurance is also a good way of showing you’re a responsible and professional business owner who takes their work seriously.

Do I need to get employers’ liability insurance?

If your small business has one or more employees, you're legally required to have employers’ liability insurance to cover you if a member of staff suffers an injury or illness as a result of something that’s happened at work.

You’ll most likely need employers’ liability insurance if you:

  • Deduct national insurance and income tax from wages
  • Decide when and where people work
  • Provide tools and materials
  • Have people working exclusively for you that cannot be easily replaced.

Part-time, permanent, casual and temporary workers should all be covered by your policy and it’s worth checking if any unpaid help is covered too.

If you only employ close family, you may be exempt. But if you’re a limited company, you’ll still need the cover regardless.

Your policy must cover you for at least £5 million, as legal costs and compensation can easily spiral. Most policies will cover you for £10 million.

You could be fined £2,500 for every day you don’t have employers’ liability insurance when you need it. If you can’t show your insurance certificate when asked, you could be fined a further £1,000.

Do I need professional indemnity insurance for my small business?

It’s not an insurance that every company will need. It applies to businesses that offer knowledge, skills or advice as part of their work. It might be needed by a self-employed individual such as a consultant, an accountant or a company. Certain industries require professionals to have this insurance under regulation, and sometimes client contracts will specify a certain level of professional indemnity insurance as necessary.

Get a full overview of professional indemnity insurance.

How much will small business insurance cost?

The cost of your insurance will depend on a variety of factors. It’s important to really consider what your business is at risk from and get a policy that will cover you adequately. Think about need first, cost second.

While every business is different, here are some of the things that can affect the cost of small business insurance:

  • Size of business – there’s actually quite a lot of room within what a ‘small’ business actually is. You might be small compared to one of the trillion-dollar megacorps, but it’s all relative. The size of your business can refer to the number of employees you have and the amount of real estate you operate out of, as well as the amount of stock you move.
  • Type of business – what sort of business are you operating? Is there a high level of risk, such as investments, financial services or property management, or perhaps you work with antiques? These sorts of businesses may require more specialist cover, which can be more expensive.
  • Level of cover – of course, the amount you’d like to be covered for affects the amount you’ll pay. It’s a simple trade-off: the greater the pay-out you’re after, the more you’ll be expected to pay in premiums. However, you could look to offset some of that with a higher level of excess that you’re willing to pay.

Do I still need business insurance if I work from home?

It depends on the type of business you run. It’s worth considering if you have equipment or store stock at home, as you could find your regular home insurance policy won’t cover you for loss or damage.

Also, if you invite customers into your home, public liability insurance can help cover you if a client suffers an injury or damage to their property and makes a claim.

If you offer advisory services – for example, as a solicitor, accountant or financial advisor – you might also need professional indemnity insurance to be a member of your professional body.

Frequently asked questions

What other types of insurance might be useful for a small business?

What other types of insurance might be useful for a small business?

Other types of business insurance you might want to consider include:

  • Business interruption insurance – can help compensate you for loss of sales or profits if your business is unable to operate for some unexpected reason.
  • Income protection – can help cover your loss of income if you can’t work because of illness or injury. Useful for self-employed sole traders who don’t have typical employee benefits like sick pay.
  • Business life insurance – tailored policies that can cover illness and death to protect your business financially if something happens to you, your partners or staff.

Do I need insurance for an online business?

If you have any employees, then yes, employers’ liability insurance is compulsory.

If you run an e-commerce business, it might be useful to have insurance for your stock and premises. And professional indemnity insurance could be valuable if you offer computer-based professional services from home.

Is business insurance tax deductible?

Yes, business insurance along with other costs like business broadband and utility bills are considered ‘allowable expenses’ and can be claimed back from HMRC. If you’re a sole trader, you can add any tax-deductible expenses to your self-assessment tax return.

You just need to make sure any expenses you claim are exclusively related to your business.

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Mubina Pirmohamed - Business and landlord insurance expert

With almost 15 years’ experience in the insurance industry, Mubina is an expert from one end to the other. From leading the introduction of new products, marketing them, innovating them, all the way to handling claims with customers. At some point in her career, she’s done it all.

Learn more about Mubina

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