Do I need insurance to start a small business?

08 January 2019

If you are mulling over possibly starting your own business, you could start balking at the prospect as your mind drifts to the subject of insurance. There seem to be so many different insurances of corporate applications: employer's liability insurance, public liability insurance, professional indemnity insurance... we could continue. Which of them would you need?

The answer: potentially none of them... or many of them. Yes, it's a confusing matter, which is why we have decided to clarify it in this article. Which insurance products you require will depend on the type of business you intend to run and your risk profile, so let's consider many of the options in turn.

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Buildings insurance

This early in your entrepreneurial journey, you might not have seriously considered renting an office space. That could prove a sound strategy, too, as you could save money on rent by simply working from home. You would also be spared costs of daily commuting.

Your home might already be insured, such as with buildings insurance, which would assist you in paying for repairs to that residence if it incurs damage from a fire, flood, storm or burglary. Still, you should check your buildings insurance policy, as it might not cover damage arising from the home's use as a workplace. If indeed it doesn't, you may need to amend or wholly replace the policy.

Contents insurance

Another tenet of home insurance, this pertains to the items inside your home rather than the physical structure that contains them. Items which would be covered by contents insurance include furniture, jewellery, electronics and money - whether they are misplaced, damaged or stolen.

Contents insurance is something else you might already have, but look closely at the terms of your policy to verify whether businesses gadgets, tools and equipment fall under its remit. If they don't, notify your insurer about your corporate activities along with the equipment you will use for them.

The Startups.co.uk website advises that, in reporting to this insurer, you provide as much information as you can to prevent issues later emerging should you have to issue a claim.

Employer's liability insurance

As you start your company, you might initially set your sights on working as a one-man band. However, if you ever want to expand the business by recruiting an employee, even just one, it could become legally necessary for you to take out a policy in employer's liability insurance.

You might not require this insurance if each employee you recruit is a closely-related family member like a spouse, parent, sibling or child. However, in other instances, forgoing this insurance could land you fines potentially totalling as much as £2,500 per day.

With this insurance in place, you can rest more easily should an employee suffer an illness or injury due to working for your firm. They would be entitled to compensation which the cover could fund.

Public liability insurance

This has much in common with employer's liability insurance, except that customers or clients would be covered in this instance. Whether a customer or client picks up an injury or their personal property is damaged, if this happens because they frequent your firm, you could be in trouble.

If the infringed party responds to their difficulty by taking legal action against you, public liability insurance can pay for not only the compensation to which they would be entitled but also legal costs which would be run up due to the claim being made.

Professional indemnity insurance

Like public liability insurance, professional indemnity insurance is not legally mandatory. However, like that other form of insurance, it could prove crucial in practice. This is because it could prevent you veering into financial problems that threaten to sink your business.

Will your company provide professional advice to customers? If so, consider professional indemnity insurance essential. Lawyers, dentists and financial advisors are all examples of professionals who could accidentally inconvenience a customer and so give rise to a legal case.

However, by adding professional indemnity to your insurance arsenal, you could cushion financial blows potentially arising from a compensation payout and legal expenses.

Business interruption insurance

Your business could, at one especially inopportune moment or another, experience a major inconvenience of its own. Your corporate premises could be robbed or damaged and so require you to suspend business operations that rely on those premises.

This gap in trading would lose you valuable revenue, but business interruption insurance could be used to help you in plugging that opening. Making a claim on business interruption insurance would let you make up a pre-tax shortfall in profits, says the Association of British Insurers.

Cyber insurance

In this day and age, your company could become very reliant on IT even right from the moment that it is established. In preparing to set up this company, you might implement computer systems and IT infrastructure, while you could collect sensitive details about customers as your business grows.

Sadly, this heavy reliance on IT could put your company at risk of a debilitating cyber attack. Perhaps that sensitive data could be breached or your IT infrastructure could be damaged. In situations like these, your firm could lose money in a range of ways.

A data breach could necessitate arranging for forensic investigations and legal advice, while damaged infrastructure could obviously call for repairs potentially to be paid out of your own pocket. Cyber insurance could help you to meet various costs of remedying cyber damage.

Might your business need other insurances, too?

All of the types of insurance mentioned above are available from our company, Be Wiser Business Insurance - a specialist provider of corporate insurance. Turning to us for your insurance needs enables you to obtain the best policies from many that we compare on your behalf.

However, so broad is our palette of insurance products that, as you peruse our website, you could spot other insurances that could be practically necessary for your business. Though many insurances are - for a business - simply a good idea rather than strictly necessary from a legal point of view, your firm's financial health could be put at an unnecessarily high risk if you skip too many insurances.

Tips for selecting the right insurance policies

Even once you have decided which kinds of insurance would be applicable for your particular business, you could still struggle to decide the specific terms which your policies should have. This is another good reason to choose Be Wiser Business Insurance - as, over the phone, we can talk you through the options.

Though we have highlighted professional indemnity insurance in this piece, each policy will only fund compensation and legal expenses up to a particular amount. For this reason, when you buy the policy, you should endeavour to choose a coverage level befitting the nature of your work.

You might find that the decision of which level of cover to choose is largely made for you if clients anticipate you having a particular level. If they indeed do, you can report this to us when you call us on 0333 999 0835. Our website includes comprehensive details of various categories of insurance that we offer, making it easier for you to settle on insurance products that are right for you.