Insuring Your Business
When you are starting a new business, you will probably think about the need for insurance. Although this can represent a significant cost, it can also give you peace of mind if things go wrong.
In this page we consider the different types of insurance you need to consider. There are two main types of insurance for a business, compulsory (where the Government and Law says that you must have it) and optional (where you may want to cover a risk). Please note that this page relates to UK businesses, if you are visiting our site from overseas the rules may well be different. You should also note that we are not experts in insurance, you should always talk to your accountant or broker before deciding whether the business insurance is necessary.
The main mandatory insurance if your business is a limited company is Employers' liability insurance and covers your employees. By law you must have at least £5 million of cover although a minimum of £10 million is now provided by most policies. You must also display the certificate of insurance in the workplace, and if you have more than one location a copy of the certificate should me displayed in each location.
If your business is not a limited company, and you are the only employee or you only employ close family members, you do not need compulsory employers' liability insurance.
Since the end of February 2005, limited companies with only one employee, where that employee also owns 50% or more of the company's shares, have also been exempt from this compulsory employers' liability insurance.
If you run a company van, lorry or car, motor vehicles liability insurance is also compulsory and must cover at least third party, fire and theft (as it would if you ran a personal car). Van insurance can be more difficult to obtain than car insurance in the authors' experience and you may be better to go to a specialist van insurance broker.
Other categories of insurance are optional and a decision as to whether or not you need cover under any given heading will depend on the nature of your business and an assessment of the risks. You should talk to your advisor before making any decision.
Public liability insurance
Although this is not strictly a compulsory insurance you will probably feel that you need public liability insurance cover. As the name suggests it covers claims for damages to third parties.
This is normally only likely to be necessary if you give advice which could make you liable. It protects against any loss suffered by your customers as a result of negligent advice. In some professions it is compulsory - examples being the law, accountancy and financial services. However it is common in other sectors such as computer consultancy and publishing and may even be a condition of a contract you may sign to provide services in these industries
You can think about limiting cover to specific risks such as fire and flood or providing more general cover. Consider the level of cover you would need for the premises (if you own the building), any equipment and stock. If you rent your premises then you should check that the landlord has the appropriate cover, it may be that you need to take out this insurance under the terms of your lease.
If your business does not use expensive items of equipment then you might to decide to pass on this one at least initially. If you do decide to provide cover for theft then an insurer will require a reasonable minimum level of security such as locks on the doors etc. You should make sure that the amount insured covers the replacement cost of the equipment.
Business interruption insurance
This insurance covers compensation for lost profits and extra costs if your business is disrupted due to say a fire. It is also sometimes referred to as 'consequential loss' insurance.
Key man insurance
A small business is often dependent on a small number of key members of staff. What would happen if they became seriously ill or died? Do you need to consider insurance cover to pay out in such a situation?
A whole host of different policies cover a range of specialist situations - for example engineering insurance and computer policies, loss of equipment when out of the office, accidental damage, Directors and Offices insurance, etc.
Working from Home
If you are planning to start your new business from home then don't assume that your normal household insurance will be enough. It will not usually cover business risks. It is possible to obtain special 'working from home' policies but you will need to talk to a broker who is experienced in this kind of office insurance, the cost will depend on the type of business you are running from your home.
It may be stating the obvious but it is important to shop around to get the best deal. You should obtain several quotes (from a broker and possibly over the internet) and compare both the cover and costs (remember that cheap is not always best in the insurance field). A personal recommendation from a fellow business person or your local business club / chamber of commerce may be the best way to decide.
Level of Cover
Again it may be stating the obvious but there is no need to have too much cover this will be an unnecessary expense and will hit your cash flow. Remember though that having too little cover could mean that any claim will not be paid out in full and the consequences of this can be catastrophic.
Consider the level of cover you need. With buildings and equipment make sure you are covered for the full replacement cost.
If there is to be an excess on any policy make sure that it is set at a sensible level and is not too high. It is tempting to have a high excess to reduce the premiums but what will the effect be if you have to make a claim?
Important: You should note that this material is published for the information of our UK visitors to forestsoftware.co.uk It provides only an overview of the authors understanding of the regulations in force at the time of writing, and no action should be taken without consulting the detailed legislation and/or seeking professional advice. We can accept no responsibility for loss occasioned by any person acting or refraining from action as a result of the above information, this information can not be considered as expert advice and should not be taken as such.