Starting a new business is both exciting and overwhelming. There is so much to do in so little time; it’s easy to forget something important, like insurance.
Business insurance is complicated; there are several different coverage types and it can be difficult to know what kind of policy you need. This article, written by Doug Kelley Director of insurance broker Bluedrop Services, helps to make sense of insurance for start-ups so you can make the right decision for your new business.
Why Do I Need Business Insurance?
Business insurance protects you and your business. It may seem unlikely you’ll ever need to make a claim (or a claim will be made against you) but the reality is it does happen and it pays to be prepared. Should something happen and you’re not insured, it could spell disaster for your business’s finances, especially when you’re just starting out.
Additionally, there are instances where even start-up businesses are legally required to have cover (we’ll go over this below) or you’ll need cover to secure contracts with clients.
What Cover Must Start-Ups Have by Law?
All businesses in the UK are legally required to have employers liability insurance as soon as they take on staff. This is the case even if you only hire part-time and temporary staff, freelancers or contractors.
If you use a vehicle for work, then by law, you’ll need car insurance.
Certain fintech companies, including payment initiation service providers and account information service providers are also required to have professional indemnity insurance.
No other policies are currently legally required in the UK but there are several you may choose to take out. Here are the most common cover types for start-up business:
Professional Indemnity Insurance
Professional indemnity insurance covers you should a claim be made against you for providing poor or negligent advice. It’s strongly recommended for contractors, freelancers, consultants and teachers. Professional indemnity cover is often insisted upon by clients before they award a contract.
Public Liability Insurance
For any business that has direct contact with members of the public, whether clients visit your workplace or you go to theirs, you will need public liability insurance. Public liability insurance covers the legal costs and any damages you may owe should you accidentally cause damage to a third party or their property whilst you are working.
Employer’s Liability Insurance
As mentioned above, employer’s liability insurance is required by law if you hire staff in any capacity. This insurance provides cover if employees suffer illness or injury as a result of their work.
Your policy must cover you for a minimum of £5 million. If you hire staff and don’t take out employer’s liability insurance, you face fines of £2,500 for every day you’re not insured.
Business Equipment and Office Insurance
Protecting the equipment that you need to run your business is just good sense. Even if the business is run from home, you should consider a policy to protect your business equipment in the event of loss, theft or damage.
If you own business premises you should also take out comprehensive building and contents insurance.
Business vehicle insurance is necessary if you use your car or van for work. Even if you only use it very occasionally, you must make sure you are adequately covered. Failure to do so could mean claims aren’t paid and you’ll be left to pay out of pocket in the event of an accident.
How Much Cover Does a Start-Up Need?
Unfortunately there isn’t a once-size-fits-all policy and the amount of cover your specific business needs will depend on many factors. It’s important that you don’t leave yourself unprotected but similarly it’s senseless to pay for more cover than you need. You’ll need to weigh up what’s appropriate for your start-up which is where an insurance broker can help.
Choosing an Insurer
Start-up businesses face unique challenges and risks and this makes insurance a little more complicated. To ensure you receive adequate cover, seek out an insurer that has experience covering start-ups in your industry.
As for cost, it’s tempting to be influenced by the lowest price but you really do get what you pay for with business insurance. Choosing a ‘bargain’ policy may mean you’re not fully covered, which will cause issues if you ever need to claim. The most important thing isn’t cost, but the level of coverage offered by a policy.
Finally, flexibility can be really helpful for start-ups. Start-ups have constantly changing needs and typically see fast growth which ideally will be reflected in cover that can be changed or cancelled at any time. Look for insurers offering flexible contracts so you don’t become locked into an unsuitable policy.
It may seem extreme to insure a small business for millions of pounds but the right cover protects what you’ve worked so hard to build. For peace of mind and future success, it’s vital that you adequately insure your start-up.