Starting and nurturing your own business takes time and patience which is why business insurance is necessary to safeguard and protect your hard work. This is why it is important to consider the different types of insurance your business needs. 

Business insurance helps you prepare for the worst, and you feel protected should the worst happen. From covering accidental mistakes to theft or damage, insurance has your back and you’re not out of pocket if your business runs into any trouble. 

Depending on your business, certain types of insurance are mandatory, but for most small businesses insurance is more for piece of mind rather than legally mandated. Our blog goes through the most common types of insurance available for small businesses.

• Our step-by-step guide to forming your own business

Key Takeaways

• Secure employers liability insurance if you have staff, as it is a legal requirement in the UK that carries significant daily fines for non-compliance.
• Protect your professional reputation with indemnity insurance to cover claims related to work errors, confidentiality breaches, or financial losses caused by your advice.
• Mitigate risks associated with public interactions by obtaining public and product liability insurance to cover injuries or property damage caused by your operations or goods.
• Safeguard your physical assets and equipment with buildings and contents insurance, noting that home policies often exclude business-related claims.
• Minimise financial disruption by investing in stock insurance, which ensures you can replace essential inventory in the event of theft, fire, or accidental damage.
• Consider incorporating as a limited company to separate your personal assets from business liabilities, providing an extra layer of protection alongside your insurance policies.
• Consult with your industry regulatory body to identify any specific mandatory insurance requirements unique to your particular business sector.

Different types of Small Business Insurance 

Employers’ Liability Insurance 

Employers’ liability insurance is the only compulsory insurance for small businesses. If your business employs people, employer liability insurance is a legal requirement or you may face a £2,500 a day fine. The insurance should be from a trusted provider and have a minimum cover of £5 Million. 

The reason for Employers’ Liability insurance is to cover any workplace-related injuries or illnesses during the time of employment. Your employee can rightfully sue you for any injuries or illnesses which can occur. The insurance helps you settle claims without using your company funds to do so. 

NB: If you are the sole director, shareholder and PSC of the company- you do not need Employers’ Liability. It is only for businesses with employees. 

• Register for PAYE as an employer.
• Employee Legislation for your limited company

Professional indemnity insurance 

If your business provides advice in any way, you may want to consider professional indemnity insurance. This insurance will protect you against compensation claims made by clients who may think you have made a mistake in your work. This also covers things such as breaching confidentiality, infringing copyright, or giving advice that causes your client to lose money. This may be suited to any business from consultancies, or graphic designers to telecommunications. 

Some industries and the professional bodies which regulate them may insist on having professional indemnity insurance due to the nature of the advice. For example, areas like law, finance, accountancy, or healthcare. 

Public and product liability insurance 

Public liability insurance is useful if your business function means you interact often with the public and may be liable for any damages. For example, if you own a store and someone slips on wet floors, or if you’re a bricklayer and someone’s car is damaged due to falling debris. 

Essentially, if your business includes visiting clients’ premises or is out in public, or clients visit your premises then public liability insurance can help protect you if there are any issues. Restaurants or service industry businesses in particular should have public liability insurance. 

Product liability insurance is similarly about protecting any damages or harm caused by your product. For example, if a material in your product unknowingly causes an allergic reaction in a client or if a manufacturing fault causes an injury. 

Your public and product liability insurance can be used to pay compensation to the injured party or pay for any legal costs.  

Building and contents insurance 

If you have an office, shop or any physical space for your business, you may want to consider getting building and contents insurance. If you rent your space, your landlord should have building insurance which protects the building itself, but you are liable for the contents, therefore, you may need to get just contents insurance. 

Contents insurance can help protect you in case of theft, damage or accidents such as fire or flooding. It means you won’t be replacing expensive equipment out of pocket should the worst happen. 

NB: if you are running your business from home, your home insurance policy may not cover businesses, so you may need two contents insurance plans. 

Stock coverage insurance 

If your business has a lot of stock, for example, if you’re a store or a manufacturer, stock coverage can be a vital insurance policy. The insurance covers the price of your stock in case there is any damage or theft. Therefore, you are not left stranded if your stock is damaged or missing in any way. 

Other considerations for business insurance 

There are many other types of insurance which can benefit your small business. It is especially dependent on your industry, so we recommend checking your industry’s regulatory body and their advice. 

Secondly, you may consider incorporating your business into a limited liability company, through incorporation your personal assets are legally separate from your company. Therefore, should your business need to make an insurance claim, your personal insurance and credit are left unaffected. 

FAQs

Is business insurance a legal requirement for UK small businesses?

While most types of business insurance are optional, employers liability insurance is a legal requirement if you have any employees. Failing to have this cover can lead to fines of up to 2,500 pounds per day. Other types of insurance may be required by your industry regulator or by clients as part of a contract before you begin work.

What is the difference between public liability and professional indemnity insurance?

Public liability insurance covers costs if a member of the public is injured or their property is damaged due to your business activities. Professional indemnity insurance, however, protects you if a client suffers a financial loss because of a mistake in your professional advice or service. Most service-based businesses choose to hold both to ensure they are fully protected against different types of claims.

Does my home insurance cover my business equipment if I work from home?

Standard home insurance policies often exclude business activities and equipment, meaning your laptop, stock, or specialised tools might not be covered in the event of theft or damage. You should check your current policy and consider adding business equipment cover or taking out a specific home-based business policy to ensure your professional assets are fully protected while working remotely.

How much does small business insurance typically cost?

The cost of business insurance varies depending on your industry, the number of employees you have, and the level of cover you require. A low-risk consultant might pay a small monthly premium, whereas a construction firm with several employees will face higher costs. It is best to get a tailored quote to ensure you are not overpaying for cover you do not actually need.

Do I need product liability insurance if I only sell products online?

While not legally mandatory, if you sell physical goods, product liability insurance is essential regardless of whether you sell from a shop or an online store. This insurance protects your business if a product you supply causes injury or illness to a customer or damages their property. Even if you did not manufacture the item, you could still be held liable as the seller in certain legal circumstances.

What happens if I do not have the correct business insurance?

Failing to have the correct insurance can have serious financial and legal consequences. Beyond the potential for heavy government fines regarding employers liability, you would be responsible for paying legal fees and compensation claims out of your own pocket. This can be enough to bankrupt a small business, making it vital to have the right protection in place from the start.