Get the right insurance

2. Business insurance: the basics

Getting the right insurance is essential for any business. It's a sensible business decision to insure your premises, fixtures, fittings, equipment and stock against disasters such as fire, flood and theft.

The type and amount of insurance cover you’ll need will vary according to the risks your business is exposed to and how much risk you’re willing to bear.

Your business is legally obliged to buy certain insurances, including:

• employers' liability insurance cover - worth at least £5 million - for most types of employees
• motor insurance if your business uses vehicles on the road or other public places
• professional indemnity insurance for businesses in professions such as law and accountancy

It's important to monitor your level of insurance cover as your business develops. Schedule an annual review to consider how your needs have changed. Weigh up the cost of the premiums against the level of risk you're running.

Using brokers

An independent insurance broker can help you select the right level of cover, assess which risks pose the greatest threat and find the best deal.

Liability and professional indemnity cover

This protects against your legal liability for any damage or harm caused by your business, its products or services to customers or the public. Awards for damages can be high, and could put you out of business, so you need to consider your business' exposure to these risks carefully.

Protect yourself and your business

Small businesses are often dependent on the people who work for them - particularly the owner-manager. As a result you should assess whether you need insurance to protect yourself and your business in the event that you or your key staff are unable to work. Types to consider include: key person insurance, critical illness cover, income protection insurance, private health insurance, life insurance, permanent health insurance and personal accident cover.

If you run your business from home, you shouldn't assume that your existing household insurance covers you. You need to assess your business insurance needs separately.

Losses and claims

If you have suffered a loss that is covered by insurance, you must notify the insurer as soon as possible. Legally, it is up to you to show that you have a valid claim under your policy.

3. Choose an insurance adviser and present your risk

You’ll need to identify the risks to your business and the type of insurance you need so that you can find a suitable insurance adviser for your business. There are 2 main types:

• an insurance broker for general and commercial risks, such as motor insurance and employers' liability insurance. An insurance broker may be able to secure a better deal for you. Ask the insurance broker how extensive a search of the insurance market they will undertake. Some insurance brokers are agents of only a small number of insurance companies and will only offer you insurance with one of those companies
• an independent financial adviser (IFA) for people-related risks and business-planning issues, such as life assurance, protection, health and business continuity. IFAs also deal with pensions and investments

You can contact insurance companies directly, but you might find it easier to use an insurance broker or IFA.

Find an insurance broker on the British Insurance Brokers’ Assocation’s website

IFA search from the association of Independent Financial Advisers

Some firms offer both IFA and broker services but if your adviser does not deal with a particular type of insurance they should be able to direct you to an alternative provider.

Honesty is essential in all dealings with insurers. Providing incomplete information or withholding something that is relevant can invalidate your claim, contract and policy.

Presenting your risk details

A comprehensive health and safety risk assessment is the first step to compiling a presentation of your risks. You can conduct assessments for other types of risk, such as fire and security - which could include premises, vehicles, workers and IT.

Assess your risks

With the help of your insurance broker you should carefully assess your insurance requirements and compile a thorough report of the condition of your business.

A good presentation of your risk details with all the required information and evidence of good practices will help the insurance company to make the right decision about how much of a risk your business is and how much premium to charge.

Minimise your risks

You're more likely to get cover if you can show that you’ve had few or no accidents in your business and that the business takes safety seriously, with detailed risk-assessment records and comprehensive training practices.

4. Insure your business and assets - general insurances

The cost of insurance depends on both the insurer's assessment of the likelihood of damage and the size of any payment they may have to make in the event of a claim.

Insuring your business premises

Taking out a suitable insurance policy will ensure you are covered for damage to your business premises from a variety of causes. Most standard contracts will insure your buildings and premises for a range of risks, including:

• fire and lightning
• explosion
• riot
• malicious damage
• storms
• floods
• damage caused by vehicles

Contents insurance

Premises insurance only covers the physical building. You’ll also need separate insurance cover for stock, machinery and contents. You have the choice of either replacement as new insurance or indemnity insurance.

Many business owners choose indemnity cover, which deducts the cost of any wear and tear when settling a claim. Contents are also covered against theft, providing there has been forcible and violent entry to, or exit from, the premises.

You can also choose a business interruption policy that insures against loss of profit and higher overheads resulting, for example, from damaged machinery.

Depending on the type of business you run, it may be wise to take out specialist insurance for your business assets.

Motor insurance

If you, your employees or anyone else working for your business uses a vehicle for work then you should check that:

• all vehicles owned by your business are covered by appropriate insurance
• any employees' vehicles used for or in connection with business have their insurance extended to cover use for their employer's business
• any personal vehicle insurance that you may have also covers business use

Business insurance if you work from home

If you work from home, you may need a specialist insurance policy. Household insurance will not cover any loss of office equipment, nor will it provide public liability cover.

Making an insurance claim

As soon as you discover loss or damage to your assets, you need to report it to your insurance provider. If you think that the loss or damage is due to a criminal act, you should report it to the police immediately.

5. Insure your business - people, life and health

If you or an employee suffers injury, illness or death, there could be serious financial consequences for you, your business or your staff.

Insurance can offer protection for the business itself - eg to make up any shortfall in profits should the business lose a key employee. It can also be an important benefit for employees.

Before buying insurance, identify the risks facing your business and employees.

Some types of insurance are compulsory. Some are needed if your business is involved in certain activities or ways of operating. Two of the most common types of business insurance are:

• employers' liability - although you don't need this if you own the business and you're its sole employee
• motor insurance - if you or your employees use vehicles for work, you should check that they’re covered by the appropriate insurance

It's important to prepare your business for disaster recovery to survive major disruption and quickly re-establish normal operations. The right insurance cover can minimise disruption. You should consider:

• professional indemnity insurance
• accident and sickness
• key personnel
• income protection
• critical illness
• private medical care
• loss of profits
• fidelity guarantee against loss as a result of staff dishonesty, eg theft
• Insuring your business’ assets

Insurance as an employee benefit

Life and health insurance is a valuable benefit to offer your employees. It can play a major role in helping you attract and retain good quality staff.