Types Of Business Insurance You Might Need

Tuesday, 9 April 2024, 8:49 am
Press Release: Hugh Grant

In this article, one of the UK’s top-rated company formation agents, Rapid Formations, highlights 12 types of business insurance you might need.

Employer’s liability insurance

A compulsory type of business insurance is employer’s liability insurance. Limited companies with at least one employee must have this policy. Employees include:

• Directors
• Full-time staff
• Part-time staff
• Subcontractors (who work under your direction and use your tools and materials)
• Work experience staff
• Apprentices
• Interns
• Volunteers
• Temporary/agency workers

Employer’s liability insurance protects your business from compensation and legal fees if an employee sues you for getting sick or injured while working for you.

For example, if an office worker slips on a wet surface and suffers a head injury, your business may face legal action for poor health and safety standards in the workplace. Or if a warehouse employee hurts their back by lifting heavy items, they may sue if you, the employer, failed to provide them with proper training.

All limited companies in the UK must have at least £5 million of employer’s liability cover. Otherwise, you may be fined up to £2,500 per day. Other business structures may be exempt from having this type of business insurance, as detailed in section 57 of the Employers’ Liability (Compulsory Insurance) Act 1969, but it is not optional for limited companies.

Public liability insurance

If your trade requires you to physically interact with the public, you should have public liability insurance. This might be a customer, supplier, or simply a passerby.

Public liability insurance protects your company from third-party claims, such as if a visitor gets injured or damages your property whilst on your business premises. It can also cover you if you accidentally damage someone else’s property whilst travelling to see a customer.

Let’s say you run a photography studio. If a customer comes in for an appointment and trips over an exposed cable, they could sue you for any injuries caused by an untidy workplace. Or let’s say you visit a client at their offices and spill water on their laptop - you may have to pay the damages.

Unlike employers’ liability insurance, this type of business insurance is optional. However, it is highly recommended, especially if you regularly come into physical contact with the general public.

Product liability insurance

This type of business insurance is supplementary to public liability cover. It is useful when someone claims for an injury or damage caused by a faulty product.

Product liability insurance protects both manufacturers, suppliers, and other parties in the supply chain. Even if your company hasn’t created the defective product, you could still have a claim made against you for being involved with it.

For instance, if you run a food and beverage store and stock another brand’s contaminated product, you could face legal action for distributing the faulty item to the public.

Product liability insurance is optional, but it can be useful for retail or tech businesses, or companies involved with supplying products to the public.

Professional indemnity (PI) insurance

Companies that offer advice, skills, or consulting as part of their services should consider PI insurance. This type of business insurance protects you from unexpected legal costs if a claim is made against you for making a mistake or giving bad advice.

Professions that could benefit from PI insurance include - but are not limited to - solicitors, accountants, financial advisers, architects, and chartered surveyors. This policy covers you if a client suffers damages or a financial loss because of negligent advice - even if it was offered for free.

Directors’ and officers’ (D&O) insurance

As a director or officer of a company, you’ll have certain obligations with regard to employees, investors, regulators, and the public. This type of business insurance provides personal cover if you’re accused of breaching your responsibilities and helps with the legal costs of resolving the matter and any financial losses you may incur during the process.

For example, an employee might accuse you of a wrongful act such as a breach of duty of care, or failure to comply with health and safety regulations in the workplace.

D&O insurance can be useful for directors, officers, partners, general managers, or other leadership roles. Undertaking these key positions in a company means that your personal assets could be at risk if an allegation is made against you. So, D&O insurance is designed to protect the individual as opposed to the company.

Commercial property insurance

If own an office, store, warehouse, or other type of business premises, you should have commercial property insurance. This policy covers the building itself in the event of damage (e.g. by flood or a fire) and the cost of repairs.

If you rent your commercial space, the landlord may still require you to have this type of business insurance, so it’s worth confirming this with them.

Commercial property insurance is particularly useful if you rely on your commercial space to carry out your daily business activities. For example, if you run a beauty salon or a photography studio.

It’s also beneficial to add contents cover to your commercial property policy. This protects your stock, furnishings, and fixtures and fittings from damage or theft.

Business interruption insurance

During an unexpected event, such as a fire, theft, or other damages that mean you’re temporarily unable to trade, business interruption insurance protects you against loss of income while you get back on your feet. It means you can continue to pay your bills and simply pick up where you left off before the incident occurred.

Unlike commercial property insurance, which only covers physical damage, this type of business insurance covers your profits when you’re unable to carry out business as usual.

Many policies don’t cover losses caused by a pandemic or epidemic, so if this is important to your business, be sure to double-check this part of the policy before committing.

Invoice insurance

Invoice insurance protects your business if a customer or client fails to pay their bills with you. If they go into liquidation or are unable to settle an invoice on time, this type of business insurance will reimburse you.

The key benefit of invoice insurance is that it shields your cash flow in the event of customer insolvency. It also assesses the credit risk of each invoice, giving you added protection over your company’s finances.

You can typically insure as many invoices as you like and you can claim up to 90% of the invoice value. However, these details will depend on the individual policy provider.

Legal protection insurance

Businesses can encounter misunderstandings and disagreements at any time. Small companies may find legal protection insurance useful for guarding their finances in these situations.

Whether the dispute concerns an employee, a customer, a contractor, or a government body, this type of business insurance gives you vital cover for resolving matters where legal proceedings are the only option.

An example of when legal protection insurance may be useful is if an ex-employee takes your business to an employment tribunal for unfair dismissal, or if a trespasser accesses your trade premises without permission and causes damage to the property. In these instances, this business insurance includes:

• Solicitor and barrister fees
• Court costs
• Expert witness expenses
• Attendance expenses
• Accountant fees
• Making or defending an appeal

Tax investigation insurance

HMRC makes thousands of tax investigations every year to ensure that businesses comply with tax regulations and pay their bills correctly. If an enquiry is made into your company, tax investigation insurance is essential.

Investigations can be instigated within high-risk industries, for bookkeeping errors, discrepancies in your tax return, or simply at random. If an investigation leads to a claim against your business, tax investigation insurance covers the legal expenses that come with settling it.

Not only can this business insurance give you peace of mind, but it can also save you valuable time and money. A tax investigation can happen without warning, in which case you know that your company is immediately protected. Without this insurance, your legal fees (for a solicitor, tax advisor etc.) can quickly stack up and put your business finances at risk.

Cyber insurance

Cyber insurance protects your business from digital threats, such as hacks, phishing attacks, and data breaches.

Keeping your company and its information safe from online hackers is your responsibility. However, considering today’s highly sophisticated hacking techniques, these incidents can be difficult to avoid.

If they do happen, the effects could be detrimental to your business. So, you should consider this business insurance and provide a crucial safety net for your work computer systems.

Key person insurance

Also known as ‘key man insurance, key person insurance shields companies from the financial impacts of critical illnesses or the death of an integral individual. This could be a director, a top executive, or an employee who is considered essential in the daily running of the business - someone whose absence would affect the company’s future.

If this person were to fall ill or pass away, this business insurance ensures that your business can keep trading and covers any profit losses in the interim period of replacing the key person.

Summary

From building and contents cover to personal and legal protection, there you have the 12 different types of business insurance that your company might need. While it’s unpleasant to think about worst-case scenarios, it’s essential to protect the company you’ve worked so hard to build.

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