What is commercial insurance?

Running your own business and being your own boss can be deeply satisfying and rewarding. But it also brings its own set of responsibilities and challenges.

One of these is deciding on which types of commercial insurance you need.

Whatever kind of business you’re in, you’ll need to make sure it’s protected, and that any potential risks are covered by the right policies.

Running your own business and being your own boss can be deeply satisfying and rewarding. But it also brings its own set of responsibilities and challenges.

One of these is deciding on which types of commercial insurance you need.

Whatever kind of business you’re in, you’ll need to make sure it’s protected, and that any potential risks are covered by the right policies.

Emily Kindness
From the Business team
6
minute read
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Posted 20 SEPTEMBER 2021

What is commercial insurance?

Commercial insurance is a general term that covers lots of different types of insurance, including public-liability insurance, employers’ liability insurance and professional-indemnity insurance. These types of insurance policies protect you and your business against claims due to losses, injury or damages. Policies can insure you against claims made by employees, customers and members of the public.

Commercial insurance policies can be a package of various types of cover under one policy. Depending on what you do and where your business is based, these can be tailored to suit your business needs based on the types of risk your business faces. Insurance can help you get back up and running quickly or help cover financial losses in situations you’re insured for.

To find the right type of commercial insurance for your business, you should consider whether you:

  • deal with members of the public
  • are a sole trader or an employer
  • have business premises
  • use a vehicle for your work
  • have stock or work tools and equipment
  • offer a product, trade, or a service
  • need business-interruption insurance.

What are the different types of commercial insurance?

Different types of commercial insurance cover include:

Public liability insurance

Public liability insurance can cover you for any claims made against you in which a customer, client or member of the public is injured (or even killed), or has their property damaged as a result of your work.

Most public-liability policies will also cover incidents that happen on your business premises or off-site – for example, a client site.

Public-liability insurance is widely bought by restaurant owners, event organisers, hairdressers and beauty salons, shop keepers and tradespeople, like plumbers, roofers, builders and carpenters. But, as most businesses deal with the public at some point, it can be a sensible option for most companies.

Be aware that public-liability policies are only valid for incidents that are unexpected and accidental.

Public-liability insurance does not cover your employees. For them you will need:

Employers’ liability insurance

If you employ anyone who is not a direct family member, even just one person, you’ll need to have employers’ liability insurance. You’ll even need it if you employ temporary or casual staff.

It covers you for any claims made by an employee who has suffered injury or illness as a result of working for you.

Employers’ liability insurance is mandatory by law. If you don’t have it, you could face fines of up to £2,500 for every day you’re not insured.

What other types of commercial insurance should I consider?

Depending on your type of business and where you’re based, you may also want to consider:

Commercial property insurance

A commercial property insurance policy can include:

  • Buildings insurance – covers the repair or rebuild of a business premises for events like fire and flooding. Circumstances you’re insured for may differ between different insurance providers, so it’s important to check each policy.
  • Contents insurance – covers business contents like goods, stock and equipment if they are lost, stolen or damaged. You’ll need to judge your stock’s value based on the cost price rather than the sale price. If the amount of stock you hold varies, you’ll need to keep your policy updated to ensure everything’s covered. Be aware, though, that insurance providers may charge an admin fee to make amendments to policies.
  • Fixtures and fittings insurance – if you have items that don’t belong to the building, but aren’t stock either, you can choose to add them to your insurance.
  • Loss of rent insurance – covers your rent for void periods between tenancies if you rent out a commercial property to tenants.

Motor insurance

If you own any vehicles in relation to your business, third-party cover is mandatory by law. If your employees use their own vehicles to work for you, they are responsible for the insurance, but you as an employer must make sure they have the legal minimum.

Tool and equipment cover

If you’re a tradesperson, like a carpenter or an electrician, you may want to consider protecting your work tools and equipment from damage, loss or theft as part of your business-insurance policy. This type of policy can also cover hired equipment as well as your own personal tools. It can be an add-on to your public-liability insurance.

Professional indemnity insurance

If you offer a service based on knowledge, skills and advice – for example, as a solicitor, accountant or architect – you may need professional indemnity insurance to become a member of a professional body in your chosen industry.

Professional indemnity insurance can cover legal fees and the costs of a claim by a client who has lost money as a result of your service. Some, but not all, professional indemnity policies will cover you for consequential loss – which is a financial loss experienced by your client because of your negligence or mistake.

Not every loss will be covered and exclusions may include losses incurred because of a computer virus. So check before you buy to see exactly what you will and won’t be covered for.

Other types of commercial insurance

Depending on the type of business you run, you may also want to consider specialist policies like cyber and data insurance, equipment-breakdown insurance, medical malpractice, office insurance, portable equipment cover and directors’ and officers’ insurance.

You might also want to consider life insurance, personal-accident cover and key-person insurance for yourself and crucial members of staff it would be difficult to function without if they became ill or died.

If you have employees, you may want to offer them benefits like death-in-service cover or critical-illness cover too as a way of attracting and keeping the right people.

See more on the different kinds of life-insurance options for businesses.

Compare commercial insurance

We’ve made finding and comparing business insurance quick and easy for you. In a matter of minutes you can compare policies and choose a deal that’s suited to your specific type of business.

Compare business insurance quotes with us, and start protecting your business today.

Frequently asked questions

How much commercial insurance do I need?

It depends on the size and type of business you run. If you have staff you’ll probably need at least £5 million of employers’ liability insurance, but you may want to opt for £10 million as standard.

With public-liability insurance, you may find that if you are bidding for particular contracts, they specify the level of insurance you are expected to hold.

For buildings insurance you’ll need to consider the rebuild costs of your premises.

You may find that, for particular professions or sectors, the regulator or professional body will set minimum standards that are expected. So you can use those as a guide to the minimum level of cover you need.

For things like stock, plant and machinery, plus tools and equipment, you’ll need to consider how much it would cost to replace them and use that as a basis for how much cover you’ll need.

Essentially, you need to think how much you’d need to pay out in compensation or other costs if something goes wrong. This will vary from business to business, sector to sector.

Is commercial insurance tax-deductible?

Potentially. HM Revenue & Customs (HMRC) generally sees business insurance as a business cost and therefore an allowable expense where the premiums are paid wholly and exclusively for your business. And, where an insurance premium is deductible from trading profits, any associated insurance premium tax is also an allowable deduction.

However, like all things tax-related, there are exceptions, so you’ll need to check whether the premium and any insurance tax on the premium is deductible for each policy you take out. If you’re not sure, ask HMRC or your accountant or tax advisor. Keep your receipts and policy documents safe and make sure any claimable insurance costs are included in your tax return.

I’m setting up a new business. When should I get commercial insurance?

You can get insurance before you even [start trading]<link to How to start a business when live>. You don’t even have to have registered your business yet – you won’t need to provide company registration numbers in your insurance application.

However, to make sure you’re paying the right premium, your insurance provider will want to know things like:

  • your business address
  • your trade type
  • your actual or projected turnover
  • your business structure (whether you’re a sole trader or a limited company, for example).

If your business needs a trade licence – such as if you’re going to be running a pet shop, a pub or a taxi service – you can sort out your insurance before you get your licence. So, for example, you may need insurance for your premises as soon as you exchange on the property, but your licence may not yet have been granted. If you start trading without the right licences your insurance will be invalid, as it will be a requirement of the insurance that all necessary licences will be in place, and any claim could be denied.

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