The different types of business insurance you might need

25th August 2023

Business insurance is a catch-all term for the various types of cover designed to protect businesses and independent professionals against unexpected events and everyday commercial risks.


The only policy that is legally required (with limited exceptions) is employers’ liability insurance. All other types of business insurance are optional and dependent on your needs.

We realise that researching insurance may be the last thing you want to do when starting a new business, but it’s important to consider the cover you might need. Quality Company Formations’ short guide should give you a general idea.


Employers’ liability insurance

If you employ anyone in your business other than yourself (i.e. as a company director), your immediate family members, or individuals who are not ordinarily resident in the UK, you are legally required to take out employers’ liability insurance as soon as you become an employer.

This type of business insurance covers you against claims in the event of an employee becoming ill or being injured as a result of working for your business. The policy will pay the compensation amount to the employee and any legal fees you may incur.


Public liability insurance

Whilst optional, public liability insurance is crucial if you have any visitors to your business premises, deal with customers or other members of the public face-to-face or carry out work on clients’ premises.

If anyone is harmed or has their property damaged due to the activities of your business, public liability insurance will provide protection by covering the compensation costs and legal fees associated with any such claims.


Professional indemnity insurance

You should give serious consideration to professional indemnity insurance if you provide expert advice, knowledge, or skills as part of your profession, or if your business handles sensitive data or intellectual property.

It covers compensation claims made by clients, and any legal costs you may incur if you provide negligent services or they lose money as a direct result of following your advice.

If you work in a regulated profession – for example, as a solicitor or financial advisor – your professional body or regulator may require you to have professional indemnity insurance, so be sure to check.

This type of business insurance is important, regardless of whether you are a sole trader, a member of a partnership, or operate through a limited company. You may also find that certain clients may insist that have professional indemnity insurance before doing business with you.


Cyber liability insurance

Cyber crime (online fraud) poses a significant threat across society, with businesses of all sizes facing an increased risk. In 2022 alone, 54% of SMEs in the UK experienced some form of cyber attack, which goes to show that it’s no longer just big businesses who need to worry.

There are many steps that you can take to protect your small business from cyber crime, one of which is cyber liability insurance – sometimes referred to as cyber risk insurance.

This type of policy is crucial for any business that uses, stores, or sends digital data. In the event of an attack, it will help with the financial costs of the breach, including lost business, third-party claims, and legal fees.

Without cyber liability insurance, your business would be 100% liable if any sensitive data were to fall into the wrong hands.


Directors’ and officers’ (D&O) liability insurance

Directors’ and officers’ (D&O) liability insurance is designed specifically for directors, company secretaries, and key managers of limited companies.

These types of roles carry a great deal of responsibility and can sometimes result in allegations of personal wrongdoings, such as breach of duty of care, negligence, mismanagement, and defamation.

In the event of any such claims being brought against a director or officer, D&O liability insurance can cover the cost of investigating, defending, and settling these types of legal actions.


Business contents insurance

Whether you run your business from dedicated commercial premises or a room in your own home, it’s important to protect your business contents from common risks and accidental damage.

Business contents insurance provides cover for these types of items, including trade stock and supplies, equipment and machinery, fixtures and fittings, and furnishings. Many policies will also cover personal items belonging to your employees and visitors.

If you operate the business from a private residence, you may be able to amend your existing home contents policy to include business items but be sure to shop around to ensure you’re getting the most appropriate cover.

You should also consider taking out portable equipment insurance as part of your business contents policy. This will protect your valuable equipment (e.g. laptops mobiles and specialist kit) against damage, loss, or theft while working offsite.


Business interruption insurance

No business owner likes to imagine the worst, but it’s impossible to control external factors that could affect your ability to trade. This is why business interruption insurance is so important, yet it remains one of the most overlooked.

Whether you experience interruption from flooding or fire, a breakdown of essential equipment, or even damage to the premises of a key supplier or client, business interruption insurance will provide compensation for a shortfall in profits and any increased costs as a result of the event.


Finding the right business insurance

Choosing the cheapest option can be tempting, especially if you’re trying to start a business on a budget, but this approach may simply result in insufficient cover, which could cost you more in the long run if things were to go wrong.

Consider the types of business insurance and level of cover that you realistically require, then spend some time shopping around for the right policies at the best price. Comparison sites like Compare the Market and MoneySupermarket are great places to start.

For more business-related advice and startup guides, visit Quality Company Formations Blogtoday.