Business Knowledge Hub

Business insurance basics FAQ

Business insurance is a vital consideration for most companies regardless of size or industry. Here we take you through some of the most commonly asked questions about business cover.

Why is business insurance so important?

Mistakes happen, and that's a natural part of business. No matter how skilled, experienced, or careful you are, things can go wrong without warning. Business insurance policies protect your livelihood if the worst should happen. All companies, big and small, should make sure that they have the right business insurance protection.

What type of business insurance do I need?

The term "business insurance" is an umbrella phrase that's used to cover a wide range of protection options. To decide which insurance is right for you, you will need to think about the kind of work you do and the risks that you need to cover yourself against. For instance, is your business likely to face claims from disgruntled customers who believe you were negligent towards them? Is there a chance that you could injure a member of the public with your business activities? Do you have business contents or stock to insure? Some of the most common forms of business insurance include:

  • Professional indemnity insurance
  • Employers' liability insurance
  • Public liability insurance
  • Business contents insurance
  • Business premises insurance

What is employers’ liability insurance?

Employers' liability insurance protects you against the cost of compensation claims arising from employee illness or injury, sustained as a result of their work for you. According to UK law, all employers must have the minimum rate of employers’ liability insurance, regardless of whether they're hiring permanent or temporary staff.

What is business buildings insurance?

Business buildings insurance or commercial buildings insurance protects the physical location of your company. Regardless of whether you run your business from your own home, rent a property, or have purchased a piece of real estate, the right business buildings insurance will pay for repairing any damage caused to the premises. This may include damage caused by flood, fire, and accidental damage.

What is professional indemnity insurance?

Professional indemnity insurance protects you from legal claims if your business gives advice to other people or companies. If you are negligent in your work and this causes your client to lose money, professional indemnity insurance will help you to cover the cost of compensation and any legal fees arising from the claim.

What is public liability insurance?

Public liability insurance is a key consideration for any business who encounters members of the public, either on their premises or elsewhere. This insurance protects you against compensation claims made for damage or injury to clients, suppliers, or customers.

What is business interruption insurance?

Business interruption insurance provides a safety net for people who are unable to continue trading or working in their business because their property is damaged, destroyed, or stolen. It will help cover lost revenue if you’re unable to trade and can cover additional costs that you need to pay up to get yourself back up and running.

Business legal insurance is a policy designed to cover your commercial legal expenses and offer protection against the potential costs of legal action brought against your business.

What are business insurance endorsements?

Business insurance endorsements are conditions that can sometimes be included on your schedule. These can either extend aspects of cover or advise you on what you may need to do in order for cover to be in place.

How much business insurance do I need?

As with most insurance policies, the level of insurance you need will depend on the nature of your business. Sometimes, your regulatory body or client contracts will specify a preferred level of cover. All businesses with employees are required to have the minimum amount of employers' liability insurance.

Do I need business insurance if I run an online business?

Online businesses can face a range of unique challenges and risks. You will need to get insurance coverage that meets your specific needs. For instance, if you have stock that you store in a warehouse and sell online, you will be able to protect it against damage and theft with stock cover. If you provide an online service, rather than selling physical goods, professional indemnity insurance can protect you if a client suffers from a financial loss because of your work.

What insurance do I need before I can start my business?

When you're first starting out in your business, you should think carefully about both the coverage you need right now, and the additional cover you might need as your company begins to grow. You'll need to get employers’ liability insurance the moment you start hiring people, but if you're unsure about how your business might evolve, don't worry. There's always an opportunity to add more cover to your policy or take out new policies later.

How do companies calculate business insurance premiums?

Business insurance companies take various factors into consideration when calculating the cost of your premiums, including:

  • The size of your business
  • Your location
  • The type of work you do
  • What type of coverage you need
  • How long you've been in business
  • Whether you have any previous insurance claims

What is insurance premium tax, and will I have to pay it?

Insurance premium tax is a form of tax that is payable on your insurance premiums. The rate of this tax is set by the government, and any documents that outline the details of your premiums, including average quotations should show how much insurance premium tax you will need to pay. All UK residents will pay the tax but people residing in the Isle of Man or Channel Islands may be exempt.

Employers’ liability coverage is the only type of business insurance that is legally required in the UK. However, it's worth noting that investing in the right cover for your company can be crucial to protecting your investment, your employees, your clients, the public, and yourself. Make sure that you compare the options carefully, and choose the cover that suits your company’s needs.

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Written by Caroline Ramsey

    Published on 28-06-2018

    Updated on 29-01-2020

Well-established content creator who specialises in the personal finance industry. More than a decade of working in editorial teams, she offers highly tailored content covering a number of topics.

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