What is business insurance?

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    At Swoop, we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. While we adhere to a strict editorial policy, our goal is to simplify complex matters, offer transparent information, unravel jargon, and empower businesses to confidently make smart financial decisions.
    Chris Godfrey

    Page written by Chris Godfrey. Last reviewed on January 4, 2024. Next review due April 6, 2025.

    Business insurance protects organisations against losses incurred in the pursuit of their normal business activities. Losses may arise through accidents, weather-related events such as floods or lightning strikes, or theft, malpractice, employee compensation claims, shipping risks, utility failures, and a host of other issues. 

    Although business insurance cannot stop problems from occurring, it can replace what was lost, pay for interim arrangements as your business gets back on its feet, and give your business the chance to thrive again.

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      Why do I need business insurance?

      All organisations, including sole traders and the self-employed need business insurance because risk is everywhere. Businesses that have contact with the general public, work for local councils or central government, or operate in high risk-industries are especially vulnerable to major financial compensation claims if things go wrong. Put simply, the potential costs and problems that may come from not having insurance protection can far outweigh any savings you may make by not buying cover.

      Is business insurance a legal requirement?

      Only employers’ liability insurance is required by law. Most other business insurances are optional, although some clients and organisations may require your organisation to have certain types of cover – such as public liability insurance – before they trade with you.

      What type of business insurance do I need?

      The type of cover you need depends on what your business does or sells, how many employees you have, where you are located, your annual turnover and a host of other variables. Important insurances that many businesses will need include:

      Types of business insurance

      Almost every business can purchase business insurance and there are insurance products to cover every type of risk:

      Public liability insurance

      Public liability insurance protects your business if someone is injured, or their property is damaged because of the services that you or your business provides. This type of cover, also known as PL or liability insurance, is designed to protect your business against third party claims for injuries or property damage from a customer or client, passer-by, or a visitor to your business premises – whether you’re at fault or not.

      Employers’ liability insurance

      Under the Employers Liability Act of 1969, employers’ liability insurance (EL) is a legal requirement for most UK employers. EL protects you and your employees, (including those who no longer work for you and some contract workers), should they be injured or become unwell as a result of working for your business. EL typically covers the associated legal and compensation costs, and other damages of such events, but it can also cover accidental injury or damages caused by an employee to a third party, such as your customers. 

      Product liability insurance

      Product liability insurance – also known as ‘product insurance’ – is designed to protect companies, partnerships, sole traders and the self-employed from financial loss in the event that someone is harmed, or property is damaged due to the products that they supply. 

      Top tip: Product liability insurance isn’t only for manufacturers. In the event of an accident, your business could be held liable even if you only distributed or repaired the product.

      Professional indemnity insurance

      Professional indemnity insurance, also known as professional liability insurance, is an essential type of cover for businesses that advise clients, help them navigate complex financial or legal affairs, or provide them with vital information that is published in the media. In these kind of cases, errors can cost many thousands or even millions in legal compensation claims. Professional indemnity (PI) can protect you if a client makes a financial loss because of your work and then makes claim against your business. Trade associations, government bodies, public institutions, and major customers will often require proof of a minimum level of PI insurance before doing business with you.

      Property insurance for businesses

      Commercial property insurance, also known as building insurance, is designed to protect the owners of commercial buildings from a financial loss resulting from damage to or the total destruction of the property and/or whatever was inside.

      Any building that is occupied by a business is classed as commercial property. Shops, offices, pubs, salons, restaurants, showrooms, cinemas, and clinics are examples of commercial property. Business property insurance also includes business contents insurance which covers the insured for the loss, damage, and theft of the contents of their business premises, including office equipment, stock and inventory.

      Top tip: If you’re a landlord, contents cover will be your tenant’s responsibility. However, depending on the lease/rent agreement you may have supplied furniture or appliances that belong to you. In which case, landlord’s commercial insurance can be used to protect your provided contents from loss, damage or theft caused by the tenant or a third party.

      Business interruption insurance

      Business interruption insurance covers businesses for loss of income if they are unable to operate due to events beyond their control – such as severe weather or power cuts. 

      Invoice insurance

      Unpaid bills are a hazard for every UK SME, sole trader and the self-employed. When clients become insolvent, suppliers are often left to pick up the costs. Often, taking legal action is simply not worth it, and the pay-outs from insolvency liquidations are typically pennies in the pound. This is particularly true if your customers are based overseas. However, invoice insurance, also known as account receivable insurance or trade credit cover can reimburse you for any unpaid invoices, including single bills with high value or invoices issued to a high-risk customer. 

      Legal protection insurance

      The legal costs involved in complex business disputes or large compensation claims can often run into the tens or even hundreds of thousands of pounds – sometimes costing more than the eventual financial award or penalty. Legal expenses insurance can cover the legal costs of litigation, arbitration, and expert legal advice connected to your company and the things you do or sell. 

      Tax investigation insurance

      Tax investigation insurance, sometimes referred to as ‘fee protection insurance’ is a special form of legal expenses cover. Designed for use in tax-related issues, this type of policy can pay your accountancy fees and expenses if you or your business are investigated by HMRC.  

      Cyber insurance

      Cyber insurance protects businesses from financial loss created by data breaches and cyber-attacks. It covers legal claims, compensation costs, and fines under the GDPR (where legally insurable). In some cases, it can also provide a fast response plan including legal, IT, PR and customer service support.

      Portable equipment insurance

      Portable equipment insurance, also known as tools Insurance or business equipment insurance, covers the cost of replacing business tools and equipment if they’re lost, damaged, or stolen. Items that are typically covered include:

      • Office equipment and contents (chairs, desk, copiers, computers, mobile phones)
      • Handheld tools (hammers, screwdrivers, saws, pliers)
      • Power tools (drills, sanders, angle grinders, nail guns)
      • Plant equipment (excavators, rollers, diggers, dump trucks)
      • Owned, loaned, leased or hire-purchased/leased tools

      Key person insurance

      Key person insurance (KPI), also known as ‘key man insurance’ or ‘key person protection’ protects organisations from the financial impact of the loss of a key individual – men and women – who can no longer work due to major illness, or who have passed away during the term of the policy. Effectively, the business insures itself against the financial fallout from such an event, giving employees, suppliers and customers the confidence to know that the business will survive even if tragedy should strike.

      How to choose business insurance

      With so many types of business insurance available, often with over-lapping cover, it is easy to buy too much or too little insurance or leave gaping holes in the cover you really need. As always, comparing insurance quotes from a range of providers is essential, but so is getting the right types of policy to cover what you do or what you sell. Securing professional advice before you buy is therefore recommended. Contact Swoop to discuss all your business insurance needs with an industry expert today.

      How much does business insurance cost?

      Premiums for some business insurances can start at less than £4 per month, but just as no two UK businesses are alike, so no two business insurance needs are the same. Costs will depend on your business type and the risks attached to what you do or sell, making every quote unique. 

      What does business insurance cover?

      Business insurance can cover almost any type of risk:

      • Employee claims for injury or sickness caused by working for your business
      • General public, client, and supplier claims for injury or sickness caused by the products or services you provide
      • Loss of equipment, tools, plant and machinery
      • Vehicle loss
      • Claims from providing incorrect information and advice
      • Defamation and libel claims
      • Cyber attack
      • Business interruption through events beyond your control
      • Loss of personal property through providing a personal guarantee for debt
      • Supply chain breakdown

      How much business insurance do I need?

      The amount of business insurance you need depends on the type and size of your business, plus, if you employ others, you will need a minimum of £5 million employers’ liability insurance. To calculate the levels of cover and what type of policy you need, start with the basics. For example, what would it cost you to replace your…

      • Buildings
      • Plant, equipment and machinery
      • Vehicles
      • Fixtures and fittings
      • Inventory
      • Technology and proprietary IP 
      • Cash on premises and business records

      Then you should think about the type of work your business does, the size of your sales and contracts, and the potential claims you could face from clients, consumers, and suppliers if anything were to go wrong. You should also check with your professional body or industry regulator, as they may set a minimum level of insurance you must carry. 

      Lastly, you must also consider what it would cost you to keep operating in the event of a crisis. For example, if your premises were destroyed in a fire, how much would it cost to secure temporary accommodation and how much would it cost to get back up to speed? Could you afford to pay your employees in the interim? Could you afford to pay yourself?

      Can I get business insurance before registering my business?

      Yes. To buy your policy, you’ll need your business address, trade type and actual or projected turnover, and you may also be asked about your business structure – for example, is it a partnership or are you a sole trader? However, you don’t need your company registration number (CRN) or other business registration details to secure cover. This means you can buy business insurance while you’re still setting up your company

      Can I get business insurance without a trade license?

      Yes. Many businesses do not need a trade licence to operate, but if you do, you may be subject to a fine if you work without securing the necessary paperwork. Businesses that typically require a trade licence include:

      • Construction
      • Health and beauty
      • Animal sales
      • Music and entertainment
      • Street events
      • Street trading (e.g. market stall)
      • Alcohol sales 
      • Waste management
      • CCTV operation

      However, you don’t need a trade licence to secure business insurance. You can secure this important cover while you are waiting for your permits to be issued.

      How Swoop can help

      All business involves risk, but that doesn’t mean you have to suffer the consequences if things go wrong. Contact Swoop today to compare top-quality business insurance from a range of providers. Don’t gamble with your organisation’s future.

      Written by

      Chris Godfrey

      Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.

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