60-second summary
Busy running your small business? Here’s what to know:
Business insurance can be tailored to cover the needs and risks of your small business.
Certain types of business cover may be required by law – for example, you must have employers’ liability cover if you have one or more employees.
Public liability insurance is another common type of cover that can protect your business from injury or damage claims from the public.
You may want to consider professional indemnity insurance to protect yourself from claims if you provide advice or professional services.
If you work from home, your home insurance may not cover things such as stock, equipment or customer visits – check with your provider to be sure.
What is small business insurance?
If you run a small 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 even 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 margins are tight and any loss of earnings or unexpected costs can seriously impact your enterprise.
And importantly, depending on the type of business you run, certain types of small business insurance cover may be required by law.
What insurance should a small business have?
The types of cover a small business might need include:
Public liability insurance
Public liability cover offers financial protection if your business is responsible for injuring a member of the public, or damaging their property.
It can cover you from hefty legal fees and compensation if someone brings a claim against your business.
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 employers’ liability insurance if the employees are immediate family members, though if a policy is in place it could still cover immediate family members working for you.
Professional indemnity insurance (PII)
Professional indemnity insurance 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.
For example, the Royal Institute of Chartered Surveyors (Rics) requires its members to have PII and solicitors must have PII under the rules set by the Solicitors Regulation Authority. Other occupations when PII is often taken out include consultants, architects, IT professionals, designers, personal trainers and private tutors.
Product liability cover
If you sell products online, this type of cover can protect you from claims resulting from the use of products that you make or supply.
For example, this could be the case if a product you sell injures a person or damages their property.
Equipment insurance
This typically covers the tools, machinery and computers that your business needs to keep running.
You can also find portable equipment cover for items such as laptops that you or your employees may take out and about with you.
Stock insurance
If you work with expensive or large amounts of stock, you may want to insure against their theft or damage. This type of cover can cover the cost to replace damaged or stolen stock, so you’re not left out of pocket.
Buildings and business contents insurance
If you own your business premises, you’ll want to insure the bricks and mortar with buildings cover, just like you’d insure your home.
And even if you don’t, you’ll no doubt want to protect what’s inside. This can cover your business property and your business contents against flooding, fire and theft.
Commercial motor insurance
If your business uses vehicles, you’re legally required to have business car or van insurance. Standard motor insurance won’t cover you.
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 heavily 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 daily, 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 that 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.
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 with more than one director, 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?
This form of insurance applies to businesses that offer knowledge, skills or advice as part of their work.
This means it might be needed by self-employed workers such as consultants or accountants.
Certain industries require professionals to have this insurance, either under regulations or for membership of professional bodies.
And some client contracts may 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 can 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 are different definitions of what a ‘small’ business 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 high-value antiques? These sorts of businesses may require more specialist cover, which can be more expensive.
Level of cover
It’s a simple trade-off: the greater the payout you’re after, the more you’ll be expected to pay in insurance premiums.
However, you could look to offset some of the cost of cover by selecting a higher excess. Just be sure that you'll be able to afford the excess should you need to claim.
What you’re covered for
If you want to build a comprehensive business policy with additional cover for things such as expensive stock, damage to your premises, a fleet of company vehicles or cyber threats, then your cover could be more expensive.
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 adviser – you might also need professional indemnity insurance to be a member of your professional body.
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FAQs
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 and costs such as business broadband and utility bills are considered ‘allowable expenses’ and can be claimed back.
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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With over 10 years’ experience writing, editing and managing content, Emma has written and edited for some of Australia’s leading financial comparison brands, including Savings.com.au, Your Investment Property Magazine, and Your Mortgage.
Stephen Maunder is an experienced personal finance editor, having spent more than a decade working for consumer print and online titles. He won several industry awards for his personal finance features at Which?, before becoming Deputy Editor at Compare the Market.
Amy helps make sure you get the best value when choosing insurance. Thanks to more than four years’ experience at Compare the Market, she understands what people look for, working closely with insurance providers to offer you deals and services that are fair, easy to understand and right for your needs.
Our content is written by a Compare the Market expert, backed by data and enhanced by technology. Find out how we ensure accuracy and quality in our Editorial Guidelines.