A Guide to Business Insurance

The law obliges entrepreneurs to take out certain types of business insurance. Other forms of insurance are optional, but entrepreneurs may find them useful depending on their circumstances.

Employers’ Liability Compulsory Insurance

Employers must have employers’ liability compulsory insurance. The Employers’ Liability (Compulsory Insurance) Act 1969 demands this.

The insurance helps pay compensation claims from employees who suffer injuries at work. There are exemptions and conditions. The Health and Safety Executive (HSE) can give further advice.

Motor Vehicles

Business vehicles must have insurance. The minimum is third-party cover. This pays for injuries and property damage.

Other motor vehicle policies are third party, fire and theft, and comprehensive. A lot of businesses have comprehensive cover. This pays for repairs to a business vehicle when there’s an accident.

Private Cars

Some staff use their own cars for business use. If so, employers must check that the policies include business use.

Professional Indemnity

Some professions must have professional indemnity insurance. These professions include accountants, financial advisers, insurance brokers, solicitors and architects.

The purpose of the insurance is to cover third party loss, damage or injury as a result of professional negligence.

Premises

Insurance for premises is not mandatory. But taking out such insurance makes sense.

Premises insurance covers the cost of rebuilding after a fire, flood or other form of damage. Entrepreneurs who rent or lease a property may not need such insurance: the landlord may pay it. The landlord will not pay for contents insurance, however. An entrepreneur has to arrange this separately.

Plant and Equipment

Plant and equipment insurance is not compulsory. It’s useful, however, to cover the costs arising from fire, vandalism and floods.

There are two types of plant and equipment insurance: new for old, and indemnity. With new for old, an insurer pays for a new piece of plant or equipment to replace something that has become unusable. With indemnity, the insurer allows for wear and tear. In other words, the settlement is lower than the amount an entrepreneur receives with a new for old policy.

Public Liability

Public liability insurance is not a legal requirement. Many businesses nonetheless take out a public liability policy.

Public liability insurance pays out when business activity leads to members of the public suffering property damage, injury or death. The insurance also covers a business’ legal fees.

Without public liability insurance, an injury to a member of the public can bankrupt a small company.

Product Liability

Any business that sells, repairs or makes products should consider product liability insurance. Taking out such insurance is not compulsory. But the insurance covers the legal costs of injury or damage that occurs if a product has a defect. Members of the public can make such claims even when a business has not acted negligently.

Directors and Officers

Directors and officers of a business do not legally require specific insurance. But such insurance provides cover if a legal claim arises after a director or officer has unwittingly acted beyond his or her normal terms of reference.

Business Interruption

An unexpected interruption to business can result in reduced profit. Business interruption insurance can help offset any losses. Such insurance is not mandatory.

Key Person

When a key person in a business goes sick or dies, the business may lose money. Key person insurance is not obligatory, but it can make up for any fall in profit.

Trade Credit

Late payments and bad debts can ruin a business. Trade credit insurance helps protect against this by giving a business money when it needs it most. The insurance is not compulsory.