Business insurance: what cover does your company need?

A client claims your advice cost them money. A customer is injured on your premises. Your laptop is stolen with a week’s work on it. These are different risks, and they need different kinds of cover.

Running a limited company separates the business from you personally, but it does not pay claims made against the company. Nor does limited liability remove every possibility of personal exposure. Insurance can help with the financial cost of a covered event, subject to the limits and exclusions of the policy. If you are still deciding how to set up, our guide to sole traders and limited companies explains that distinction in more detail.

You do not need to buy every policy in this guide. Start with what the law requires, then look at the work you do, the contracts you sign and the things your business depends on.

Start with these questions

This is a starting point, not a shopping list. Some cover is required by law or a professional regulator. A client, venue, landlord or lender may require other cover under a contract.

What insurance is legally required?

Employers’ liability

If you employ people, you will usually need employers’ liability insurance. It covers claims from employees who are injured or become ill because of their work. The legal minimum is £5 million of cover from an authorised insurer, and the insurance certificate must be available to employees. The Health and Safety Executive can fine a business that should have cover but does not.

There is an exemption relevant to many solo founders: if the company’s only employee is its owner, and that person owns at least 50% of its issued share capital, the company does not have to hold employers’ liability insurance under that rule.

Check again before bringing someone else into the business. Job titles alone do not settle whether cover is required. Casual workers, contractors and people described as self-employed may need to be considered according to how they actually work for you. The HSE’s employers’ liability guide explains the requirement and exemptions.

Motor insurance

If a vehicle is used for business, make sure its insurance covers that use. This applies when you use your own car for work as well as when the company owns a vehicle. Visiting clients or making deliveries can require cover beyond an ordinary social, domestic and pleasure policy. Tell the insurer how the vehicle is used and check the policy before you drive.

Regulated professions

Some professions must hold professional indemnity insurance to meet their regulator’s rules. If you work in a regulated field, check that regulator’s requirements, including the minimum cover and any rules about keeping cover after you stop practising.

Cover to consider based on the work you do

Professional indemnity: when clients rely on your work

Professional indemnity insurance is particularly relevant if you provide advice, designs, software or other professional services. It can help with claims that an error, omission or failure in your work caused a client financial loss.

For a consultant, freelancer or agency, this is often more immediately relevant than cover for a shop or warehouse. It may also be required by a client contract. Check the activities described in the policy: cover for one type of service does not necessarily extend to everything your business now offers.

Public liability: when people encounter your business

Public liability insurance can cover claims if your business activities injure a member of the public or damage someone else’s property. Think of a visitor slipping at your premises or damage caused while you work at a client’s site.

It is not generally compulsory by law, but clients, venues and landlords often require it. Check any contract for the level of cover you have promised to hold.

Product liability: when you supply physical products

If you make, import, sell or supply products, consider what would happen if one caused injury or damage. Responsibility can arise even when another business manufactured the item.

Product liability is sometimes included with public liability, but check the products, territories and sales channels the policy covers. This matters if you begin importing or selling overseas after buying your original cover.

Property, equipment and stock

Property cover can protect the physical things your business needs: laptops, tools, furniture, stock and, where appropriate, premises. A home insurance policy may not cover business equipment, particularly when you take it away from home.

If you lease premises, check who insures the building and who is responsible for contents and improvements. If you take tools to jobs or send goods by courier, check whether they are covered in transit as well as at your premises.

Cyber insurance: when a digital incident could stop you working

Cyber insurance may help with the costs of responding to a covered breach or attack, recovering systems and handling related claims. It is worth assessing if you hold customer information, take payments online or cannot trade when your systems are down.

It does not replace basic security, and it does not cover every consequence of an incident. Ask what response support is included, what security conditions you must meet and what the policy excludes. The Association of British Insurers’ cyber guide is a useful explanation of the limits.

Cover that may matter as you grow

Some policies become more relevant when the business takes on people, larger contracts or greater financial commitments:

• Business interruption can help replace lost income when an insured event, such as a fire or flood, prevents you from trading. Check which events trigger it and how long the policy will pay.

• Directors’ and officers’ insurance can help with certain claims made against directors personally in connection with their decisions. It has important exclusions and does not provide blanket protection for everything a director does.

• Employment practices liability can help with certain employee claims, including discrimination or unfair dismissal. It becomes worth assessing when you hire.

• Key person insurance can pay the company if someone essential to it dies or suffers a covered serious illness. Consider it if the business depends heavily on a founder, particularly when there are co-founders, investors or borrowing. If you are setting up with someone else, read our guide to co-founder agreements and ownership.

• Trade credit insurance can protect against certain unpaid business invoices. It may matter if a few customers account for a large share of your revenue and buy on credit.

• Legal expenses insurance may help with the costs of specified disputes. Check which disputes are included before assuming it covers a contract disagreement, employment claim or tax investigation.

• Intellectual property insurance may help with certain infringement disputes. It is separate from establishing who actually owns the IP your business uses.

• Environmental insurance may be relevant if your activities could cause pollution or contamination, such as handling fuel, chemicals or waste.

You may also need specialist cover for goods in transit, tools away from your premises or particular industry risks. The point is to match cover to what your business actually does.

Already insured? Check whether the business has changed

The policy you bought when you incorporated may no longer describe the business you run today. Review it when you:

• hire your first employee;

• take on a larger client or accept a contract with insurance requirements;

• add a new service or begin giving advice;

• launch, import or sell a physical product;

• move premises or buy expensive equipment;

• begin holding more customer data; or

• increase your stock, revenue or value of work substantially.

Tell your insurer or broker about material changes. Check that the activities, values and limits in the policy still fit. Underinsurance can affect what you receive from a claim, depending on the policy terms.

How to choose cover without buying everything

You can buy directly from an insurer or work with a broker. Buying direct can be straightforward when your activities and requirements are simple. A broker may be useful when you have several risks, contractual requirements or uncertainty about what a policy includes.

Compare the cover as well as the premium. Ask:

1. What events and activities are covered?

2. What is excluded, and what conditions must we meet?

3. What are the cover limit and excess?

4. Do our client contracts require a particular level of cover?

5. Will the policy still fit if we grow or change what we do?

If you use a broker, ask which insurers it compares, whether it charges a fee and how it is paid. Keep copies of your policy documents and review them when the business changes, rather than waiting for the next renewal.

FOUNDRS can connect founders with our insurance partners, Price Forbes and Premierline, to discuss cover that fits their business. Start with the risks you face today, then revisit the decision as the company grows.