Small business insurance: A complete guide

Got your own business up and running but have no idea where to start with insurance? Every company requires insurance to protect themselves from unexpected financial burdens. This is especially true for small businesses, which are less likely to have the funds to cover costs like legal fees and compensation payouts.

However, when money is tight, you may think insurance isn’t worth the price. Yet you never know what’s around the corner. For instance, what if a fire or flood destroys your business premises? It costs £12,060 on average to clean up the building alone — not including the price of any repairs or reconstruction — which may leave you financially struggling if you don’t have insurance. Moreover, there’s always the risk of a client making a claim against you should they be unhappy with your service, and this could also be a financial burden.

There is no one-size-fits all approach to insurance, so this guide contains all you need to know about securing the cover your small business requires.

What is small business insurance?

Small business insurance differs to standard business insurance because these smaller companies have alternative needs and priorities to larger brands. An effective policy covers the typical everyday risks of running a small business, such as damages, injuries, and theft. For example, you could face legal action if a customer suffers an injury on your premises or is harmed by a product you sell. Without insurance, it’s down to you to pay the costs, which is not ideal when you own a small enterprise with a strict budget. Say you work as a mobile hairdresser, for example. There’s always the potential risk of your equipment being lost or stolen, leaving you out of work unless you can afford new tools straight away. You’ll require tools and equipment or stock cover for this to help with the costs associated with replacing any equipment..

How much cover does a small business need?

As tradesman insurance experts Tradesman Saver point out: “Every small business is different, so your insurance needs are specific to your company — you don’t want to spend more money on cover that you don’t actually benefit from.” For instance, a retail shop may require covers like stock cover and goods in transit, while an office-based company will benefit more from office buildings cover, business interruption, and contents insurance.

However, there are things all small businesses will want, like public liability, property and personal accident and sickness insurance. The best way to identify how much cover you need is to speak to an insurance specialist who can help evaluate your requirements.

What is covered by small business insurance?

Insurers will offer different levels of cover and some may allow you to pick and choose to build your own policy, but generally it’s a good idea for small business insurance to include the following:

• Public liability, which is necessary if you frequently deal with people. This covers costs should a client or member of the public make a claim against you for an injury sustained or property damaged as a result of your work.
• Professional indemnity if you make a mistake at work which causes a client reputational or financial loss.
• Product liability, which covers the costs should a product you use or offer cause injury.
• Equipment and tools cover in case your equipment is stolen or damaged.
• Personal accident and sickness to provide income protection if an employee is unable to work due to illness or injury.

There are plenty more you can include in your policy, however, such as business interruption, stock cover, and business buildings insurance. Some may be more essential than others though. For instance, if you own premises, business buildings cover is recommended in case of damage such as fires or burst pipes, as well for things like theft or business interruption. However, should you rent the building, it’s the responsibility of the owner to secure this type of insurance.

While none of these are compulsory, employer’s liability insurance is required by law if you hire any staff. This covers the costs if an employee is injured or becomes ill while working. Without this cover you could be fined up to £2,500 a day for every day you are uninsured but allowing staff to work.

How much does small business insurance cost?

The cost of your small business insurance policy depends on a variety of factors, including the size of your company, how many employees you hire, the potential risks, and the level of cover you need. Your previous claims history could also increase your policy cost by showing insurers that your business is potentially more at risk. However, don’t skimp and settle for a very basic policy. You may not think you need certain covers now, but in the future you might, so it’s always worth paying a little bit more to protect your business. When searching for the right insurance, be sure to compare prices across multiple providers to get the best deal.

Is small business insurance required for home-based organisations?

If you operate your business from home, you still need insurance, including the following small covers: public liability, contents insurance, and public indemnity. Public liability will protect your business should customers suffer an injury as a result of your work or have their property damaged. Meanwhile, contents insurance covers company possessions such as your office equipment, and public indemnity protects your business if you’re accused of professional negligence.

However, one thing to consider is that, if you use office equipment at home, these items will need to be protected with business contents insurance specifically. Things like computers, laptops, and printers for work use are likely unable to be added onto your standard home contents insurance, so you require additional cover. This should include protection outside of your home. So, say, you met a client in a coffee shop and a drink was spilled on your laptop, you’d be covered. Again, what you need depends on the nature of your home business. You won’t require employer’s liability insurance if you work alone, for example.