Understanding small business insurance

There are a whole host of different types of business insurance policies. Some have been around for a long time, but as technology and society advances, new policies are created to protect the more modern aspects of a business.

It can be difficult to understand what types of cover your business needs, as you want to be suitably protected without spending unnecessary money on policies that aren’t relevant. It's possible to buy individual policies, but some insurers and brokers will create a package of insurance for specific industries. These are designed with the right level of each relevant policy tailored to the nature of the business and they will ensure that you aren’t overpaying for duplicate cover on multiple policies.

In this blog, we’ll provide a rundown of the various types of business insurance policies, discussing what each one is and why you may need it for your business.

What is contents insurance and why do I need it?

Contents insurance for a business is essentially the same policy as you would purchase for your home, but for a commercial setting. Contents insurance protects all equipment stored within your company premises in the event of loss, damage or theft, from computers in an office to chairs at a beauty salon. Even if your business doesn’t own largely expensive machinery or technical equipment, contents insurance is still recommended to protect from the unpredictable.

What is buildings insurance and why do I need it?

Commercial buildings insurance covers any physical business premises from structural damage due to unforeseen instances like fire or flood. This could be for private premises, such as a warehouse or factory, as well as customer-facing buildings like a restaurant or storefront. Although not required by law, it’s wise to purchase buildings insurance so that repairs of this nature can be carried out when needed at minimal cost to the business, meaning you can get back up and running swiftly after a disaster. Businesses that lease premises do not usually need building insurance as these types of repairs tend to be the responsibility of the landlord or freehold owner.

What’s business interruption insurance and is it relevant to me?

Business interruption insurance covers a loss of income following an unexpected event. This could be if there is a fire or flood at your business premises that has resulted in a loss of earnings, while you make repairs and or you’re unable to trade while these repairs are being carried out. Business interruption insurance does not cover the cost of repairs and replacing equipment like contents and buildings insurance does, but instead covers the loss of income that results from these events. It’s important to note that every insurer treats business interruption insurance differently. Be careful if you purchase this type of cover and be sure to thoroughly read the policy wording to be confident in exactly what is covered.

What is employers’ liability insurance and why do I need it?

Employers’ liability (EL) insurance protects you against any legal fees or compensation that can arise if an employee gets injured or falls ill as a result of working for the company. It’s a legal requirement to have EL insurance for most employers and must cover you for at least £5 million. You can be fined for every day that you are not insured. For a business to not legally require EL insurance, you must only employ family members, or only have employees that are situated outside of the UK.

What’s directors’ and officers' liability insurance? Do I need it?

Directors’ and officers’ liability (D&O) insurance protects directors and key managers from any potential defence proceedings and compensation costs if claims are made against them for alleged wrongful acts. These wrongful acts can include (but are not limited to) a breach of duty or trust, misleading statements and neglect. D&O insurance does not cover the business as a whole, only directors or officers (key managers). Without D&O insurance, directors and officers may find it much more difficult to defend themselves from possible repercussions from claims of this nature.

What is public liability insurance and why do I need it?

Public liability insurance protects your business from the potential costs of claims made by members of the public for incidents that happen in connection with your business. This could be a member of the public getting injured, such as slipping whilst on company premises, or from damage to their property, like their phone, laptop or vehicle. Public liability insurance is recommended to any business that has clients visit company premises, visits clients themselves, or operates at public venues where members of the public could be. Without this type of insurance, any claims from the public will need to be paid out in full by the business.

What is cyber liability insurance and why do I need it?

Cyber liability insurance is a more recently introduced business insurance, created as a response to the constantly evolving digital world. It protects your business from digital threats, such as data breaches. Don’t be fooled by thinking that if you have a small business you are safe from cyber-attacks, as criminals often target multiple smaller businesses over large corporations. This is because smaller companies tend to have less cyber security, are therefore easier to attack and more likely to pay a ransom. Cyber liability insurance can help with the costs involved with recovering data, sensitive information and stolen digital property. If your business uses, sends or stores any form of electronic data, then you can benefit from this type of insurance. Most policies can be tailored to your needs depending on the industry you are in and the size of your business.

What is professional indemnity insurance and why do I need it?

A client or customer is able to sue your business if they believe that your business made a mistake that has caused them reputational or financial loss. Professional indemnity insurance protects your business against this and is a good idea for any business where a potential mistake could be costly for the client or customer, most commonly if your business provides advice or a professional service. It’s important to note that your business could still be sued even if the service or advice was given free of charge.

What is legal protection insurance and do I need it?

Legal disputes can be very costly and time-consuming and may have a severe impact on your business if they are not dealt with correctly. Legal protection insurance is designed to cover the business for unforeseen legal costs, including legal representation, and give you access to professional legal advice. This cover could assist you in defending allegations made against the business, as well as help you pursue a legal dispute against a client or customer, such as a client breaching a contract by refusing to pay for the services your business has provided them.

What’s stock insurance and is it something I need?

If you are a manufacturer or retailer, your stock is likely to be the most important aspect of your business, and losing any could be detrimental to profits. Stock insurance covers the cost of replacing your stock if any is lost, stolen or damaged. Any business that stores and sells items can benefit from stock insurance: it doesn't matter what you sell, whether it’s clothes, pet food or cars - it can all be protected. When you have stock insurance, you must always update the insurer if any circumstances change. This could be getting a higher value or quantity or stock or moving your stock to be stored or sold in a new location, as this may affect your policy and your ability to make a claim if you need to.

What is key person insurance and why do I need it?

Key person insurance combines aspects of life insurance, critical illness cover and income protection for a commercial setting. A key person is defined as anybody that would impact the running of the business if they were absent. This policy will give the business a set sum of money to find a replacement individual if a key person becomes critically ill or passes away. If your business has a person (or multiple people) that is integral to the daily running of the business, you should consider purchasing key person insurance to protect the business from a financial loss if the key person is no longer able to work.

At Smart Money People, we collect reviews for a variety of insurers, as well as insurance brokers. Before taking out any insurance policy or broker package, you should always check genuine reviews to see how well customers rate their experience with your shortlist of providers.

If you’re a business owner with any form of business insurance, please take the time to leave an honest review to help others in your situation.

Together, we can increase trust and transparency in financial services.