When starting up a small business, taking out insurance may not be at the top of the list. But there are many policies – some a legal requirement – that new business owners should at least consider, as Penelope Rance discovers.
In an ideal world, any new business would be insured to the hilt, protected against theft, flood and legal action. But for a new company weighing the value of every expense, it’s often a case of necessity versus nice-to-have.
What no start-up can afford, however, is to be uninformed about its insurance needs. “All start-ups should consider insurance as part of their business plan,” advises George Thatcher, Business Development Specialist at FSB Insurance. “They should research it, then enforce the policies just before they launch.”
If you’re a limited company with more than one director, whether you have staff or not, employer’s liability is a legal requirement. “It’s a moral duty,” says Rob Starr, CEO of Crunch Insurance. “You’re protecting the person against damage to their goods or person – as an employer you’re making sure they’re looked after.”
While sole traders or partnerships working alone are exempt, if you use any volunteers, apprentices, employees or agency workers that are not direct family members, you must cover them. “It’s important that new start-ups understand the legalities surrounding employer’s liability,” says Mr Thatcher.
Public liability is vital if you work on-site, or if anyone comes to your premises. “It can be essential for businesses which come into contact with the public or clients, and covers businesses if they cause third-party property damage or bodily injury,” says Deborah Holland, Commercial Director at Simply Business.
Product liability is important if you’re selling any items. “If the product damages the customer in any way, even if you’re not the manufacturer, the first person they’ll sue is you,” says Mr Starr. “You can pass the claim on to the people you bought it off, but if the manufacturer is in a foreign country with no trade agreement with the UK, the claim could come back to you.”
If you offer advice or design services, and these lead to financial loss, your client has every right to sue. Professional indemnity defends you against the legal challenge – even if you’re not at fault, you will be liable for legal costs. If you are found to be at fault, those costs will also be covered.
The level of public indemnity you need depends on your trade, so rather than get bolt-on cover from a generalist insurer, speak to a specialist. And protect against retrospective claims.
“It needs to run for the lifetime of the business with no breaks,” says Mr Thatcher. “And you need to have run-off cover after the company stops trading.”
If something stops you trading, loss-of-profit insurance will put you back in funds for that period. “Every company should look at some form of business continuity – what happens if you can’t make it into the office that day?” says Sean Carney, Direct Commercial Underwriter at Hiscox UK.
“If you’re a wedding venue and have burst pipes, there’ll be loss of income – you’ll have to cancel weddings as you can’t replicate that building elsewhere.”
You can also cover increased cost of working. If your office gets flooded, you will receive money to rent another space and put in computers and a phone line until you’re able to return to your premises.
“If you’re a one-man band, consider personal accident insurance too,” adds Mr Carney. “You’ll lose your day rate if you can’t get to work, or an accident prevents you fulfilling your role.”
“The most important part of the business is you,” says Mr Starr. “As a sole trader, you’ve put all your money in to start the business. If the income stops, what do you do?”
An income protection policy will ensure you continue to receive income if you are unable to work, while a critical illness policy will pay out a lump sum on the diagnosis of an agreed condition.
As the company increases in size, consider covering key people too.
“Consider insurance for specialist roles,” says Mr Carney. “You shouldn’t be totally reliant on anyone, but there will always be those points of failure in any company.”
As a director, if an outside party brings a suit against you, you face significant costs if found guilty of wrongdoing.
“As soon as you become a limited company, you should look at directors and officers insurance,” advises Mr Carney.
As your company grows, this will protect you against wrongdoing by fellow directors. “Someone could compromise the business and you could all be pulled into a claim,” explains Mr Starr. “You have to prove that you didn’t know about it and defending the claim can cost hundreds of thousands of pounds.”
Recent malware attacks show just why it’s vital to have protection against cyber crime. “Start-ups are just as likely to be targeted by hackers as large organisations,” says Mr Thatcher. “Policies can cover breach costs, cyber business interruption, hacker damage, cyber extortion, privacy protection and media liability.”
If you’re holding a lot of your own or your customers’ data, you should insure that too.
FSB now offers free basic cyber protection to all Business Essentials members, with the option of paying for a higher level of cover.
Most motor insurance covers social and domestic travel, and allows you to commute to a fixed place of work, but if you’re going to different sites, you need to add Class 1 use, or your policy may be null and void. Commercial vehicle insurance will cover you for these uses, but if you’re selling out of the vehicle, you need to add Class 2.
“Very cheap vehicle insurance, such as that seen on aggregators, won’t cover for business use,” warns Mr Starr.
Don’t assume you’re covered for work travel under a personal policy. “Business travel is not the same as general travel insurance, so it’s important to check all policy documentation to make sure it’s included,” advises Mr Thatcher.
“Consider a corporate travel policy,” says Mr Starr. “It’s not expensive, but if you go abroad a lot it’s very important as medical bills can be horrendous.”
If you’re taking a lease, buildings insurance will usually be the responsibility of the freeholder, but anyone owning their own premises will need to take out a business buildings insurance policy.
Any business should also think about insuring its contents, including any additional equipment. “If you invest in tools and equipment, it’s important that you file the receipts or keep an electronic copy as insurers are likely to ask you to prove ownership in the event of a claim,” advises Mr Thatcher.
For more information, visit fsb.co.uk/benefits