Q. What are the basic kinds of insurance required of a small business?
A.Business insurance requirements depend on the firm’s type, but at the bare minimum you will require public liability insurance, business motor insurance and liability insurance for any employees. While public liability insurance isn’t necessarily legally mandated, most serious businesses cover themselves for situations in which public customers injure themselves through using your goods or services, and some companies won’t do business with firms that aren’t covered. Business motor insurance is necessary to cover any use of a vehicle by employee or employer for business purposes. And if you employ anyone outside your immediate family, you are required to take out liability insurance to cover the cost of anyone you hire getting hurt through work, whether they trip over cables or become too stressed; the policy has to cover at least £5m worth of damages. Additional insurance might also be mandated depending on your line of work: any company that offers advice, whether it is to individuals or institutions, needs to take out indemnity insurance, which covers damages resulting from mistakes in your advice. It is required of a wide range of professions, from hedge fund advisors to architects. But apart from the legal requirement, Duncan Philpott of indemnity specialists Prime Profession says: “It makes good business sense because you’re protecting your biggest business asset – which is you.”
Q. What additional insurance is it advisable to buy?
A.It is a good idea to have insurance beyond the legal requirements not only because it hedges your risks, but because it also makes other companies confident that you are a reputable firm with which to trade. This could include building and contents insurance as well as computer insurance, which might need a separate policy. It is also wise to take out business interruption insurance, which will protect your income and overheads if unexpected catastrophe disrupts your ability to trade. With interruption cover, it is important to be sure you are insured for an adequate period – rebuilding a customer base or setting up your office after a disaster can take longer than you think. Credit insurance, meanwhile, covers the firm’s balance sheet against bankrupted debtors, while income protection insurance ensures that if an employee goes off work sick you aren’t on the hook for their long-term salary. Legal insurance can cover your firm’s non-compliance with the mountain of regulations and legislative requirements. And on top of all these policies, there are numerous others that might make sense depending on how your firm is structured: “key man” insurance, for example, covers earnings if an employee central to the company’s value is lost through unexpected death or incapacity.
Q. Where should I buy all this insurance?
A.There are several large firms with departments that specifically cater to small businesses, including Aviva and Lloyds TSB. Information is available from the Federation of Small Businesses, but the most common way to find the right insurance is to use a broker. Brokers work on a commission based on the cost of the premium you buy (which means that, in theory, they are incentivised to get you an expensive policy) so make sure you do your research beforehand and seek out a reputable broker.