Starting a business comes with many questions, and one of the most frequently asked revolves around business insurance.
Insurance protects a business against losses that could incur during its running, such as property or equipment damages, through to employee or customer claims.
As with many of the decisions involved with owning a company, business insurance can be a minefield, therefore it is useful to begin by understanding the different types available.
Public liability insurance
One of the most common, and arguably necessary, forms of business insurance is public liability insurance.
While having public liability insurance is not a legal requirement, is often seen as a necessity for the likes of health and beauty businesses, restaurant owners, and tradesmen due to their close proximity to the public – but is a good idea for any business with plans to deal with people – even virtually.
This type of insurance covers compensation and legal costs as a result of any claims of injury or property damage from members of the public.
This would cover claims made by clients, customers or any other member of the public – with some clients expecting a level of cover from businesses they operate with.
Any eventuality, from coffee spills on laptops or slips on a wet floor, could be covered up to the limit of each policy.
Employers’ liability insurance
Unlike its public counterpart, employers’ liability insurance is a legal requirement for businesses.
While there are a few exemptions, most employers will be bound to take out insurance through the Employers’ Liability (Compulsory Insurance) Act 1969.
Legally, businesses will need to take out at least a £5 million policy, although the industry standard is typically £10 million.
Employers’ liability insurance would cover a business across a range of costs relating to workers, or ex-employees, who suffer illness or injury directly as a result of work.
This also includes unsafe working environments or faulty equipment, but does not cover any deliberate acts that cause injury or illness or any injury or illness that occurs whilst working abroad.
Product liability insurance
Product liability insurance is usually taken out alongside public liability insurance, and is seen as an essential for businesses that manufacture or sells products.
It covers against any claims made by a customer who has suffered as a result of a fault with a product.
Faulty product claims can be made up to three years after purchase, and in some cases even longer.
Professional indemnity insurance
Professional indemnity insurance is often recommended to small businesses or the self-employed, and protects against any compensation owed to a client.
This type of insurance tends to be more common in businesses that offer knowledge, advice and skills – such as marketing agencies, business consultants or financial advisors.
The cover mainly focuses on protection against breaches of confidentiality, professional negligence and libel claims.
Business interruption insurance
Business interruption insurance is fairly self-explanatory, and covers a business if they are unable to operate unexpectedly for a period of time.
This can range from anything from a fire or flood, to suppliers being unable to fulfil their obligations.
Unfortunately, most Covid-19 related claims are unlikely to be covered by business interruption insurance.
Business contents insurance
Also known as commercial contents or business assets insurance, this protects the possessions and equipment inside a business premises.
Should a business suffer anything from fire, flood, theft or vandalism, this would cover the costs of replacement for the damaged business properties.
Credit risk insurance
Credit insurance gives businesses protection against customers who are unable to pay for goods or services they have already received, as a result of a customer defaulting, going bankrupt, or becoming insolvent.
As the name suggests, cyber insurance covers businesses in the event of breaches and hacks online.
It can also cover the costs involved in breaking the news to regulators and customers, and legal fees and compensation should a business be sued as a result of a data breach.
If a cyber-attack stops a company trading, it can cover income loss and pay for temporary equipment too.
Key man insurance
Essentially, key man insurance is a policy covering any losses incurred due to the critical illness, disability or death of an employee.
While the definition of ‘key man’ can vary, it usually covers employees who are integral to the financial success of a business such as founders, directors, or those with specialist skills or knowledge.
What to do
As detailed, business insurance can be confusing, and there is a lot on offer when it comes to covering any potential business losses.
As with all insurance, the level of cover required will also vary from business to business, and it could be worth getting in touch with insurance specialists and indeed any clients to discuss which options are best.
Conducting an evaluation of business operations alongside the insurance policies available will give an idea of what is best for each business.