Business insurance: the key information

Business insurance, also known as commercial insurance, is an umbrella term for a number of different types of policies that protect your business against a range of risks. The type of policy, or policies, you choose to cover your business - and the price of the premiums you pay for them - will depend largely on the nature and scale of your operation and your own attitude towards risk.

However, in its most basic form commercial insurance covers the structure and contents of your business premises and - if you have staff - employers' liability insurance.

What kind of business insurance am I required to have by law?

Again, it depends on the nature and scale of your company. If you're a sole trader with no employees and no premises, the answer is absolutely none. However, there are three types of cover that are legally required if they're applicable to your operation. They are:

Employers' Liability Compulsory insurance (ELCI)
Motor insurance
Professional Indemnity insurance (PI).

What is Employers' Liability Compulsory insurance?

If your business has one or more employees, you are legally required to have ELCI, which protects your business from financial claims made by staff as a result of illness or injuries sustained while in your employ.

By law, you're required to have a minimum of £5 million ELCI cover. If you don't have it, you could be fined up to £2500 a day by the Health and Safety Executive (HSE).

You are exempt from needing ELCI if your business meets any of the following criteria:

A non-limited business that only employs family members
A sole trader or partnership where the owners/employees own at least 50% of the trading company.

What does a standard commercial insurance policy cover?

A standard commercial insurance policy typically offers cover in four key areas:

Business premises and its contents
ELCI
Public liability, which covers legal liabilities in respect of claims by third parties for injuries suffered or property damaged arising out of the business. The legal costs of both the claimant and the insured are included in the cover
Product liability, which is protection against financial damage caused as a result of a member of the public suffering harm as a consequence of using a product sold by your business.

In addition to these four common areas, a standard commercial insurance policy can be adjusted to suit the individual needs of your company. This might include, for example:

Business interruption insurance. Your premises and its contents are insured by a standard commercial policy, but additional cover is required to insure you against loss of business income following a claim under the buildings or contents cover (for example, there may be a period of inactivity while your fire-damaged premises is being rebuilt). Business interruption insurance can include cover for loss of business income for outstanding debit balances where records are lost following damage, denial of access as a result of damage to premises in the vicinity or closure due to a failure of public utilities.
Cash on premises insurance
Goods in transit insurance
Travel insurance
Credit insurance.

What other types of insurance might I consider?

In addition to standard commercial insurance, Make It Cheaper offers three other types of insurance policies that you might consider taking out, depending on the nature of your business. These are:

1. Motor insurance

Also known as fleet insurance, this is a legal requirement for companies that own and use any type of vehicle.

Legally, you need to cover your business vehicles on a third-party basis, but you should consider taking out a fully comprehensive policy so that your own vehicles are also covered in the event of accidental damage, vandalism or theft.

2. Professional Indemnity insurance

If your business offers professional services in fields such as accountancy, finance and law, you are legally required to take out Professional Indemnity (PI) insurance. This protects your business should any clients or third parties make claims against you on the basis of bad advice or negligence.

Businesses that do not offer these services specifically, but do sell expertise, advice or skills in some form, often take out professional indemnity insurance because they know that one costly claim has the potential to leave them bankrupt.

3. Directors and Officers (D&O) liability insurance

This type of insurance protects company directors and other senior executives in the event of negligence, default, breach of duty or breach of trust claimed by a third party. In the event of any claims made to this effect - which could be mischievous and completely unfounded - the business may face significant legal expenses. These expenses may also be compounded by any financial settlement that needs to be made as a result of the claim.

Young, entrepreneurial companies may be particularly susceptible to employment-related disputes because they do not tend to focus on risk management strategies while they are in the midst of developing and launching exciting new products and services. Other types of businesses that are vulnerable to employment-related claims are partnerships and family firms.

A D&O policy also provides financial cover that stops the senior individual's personal assets, such as their home, car and savings, from being placed at risk in these circumstances.

How can I buy or switch my business insurance with Make It Cheaper?

Make It Cheaper offers a free, impartial service that sources prices from a range of insurers and helps you find the right commercial insurance policy to suit your business needs. You can read more about the key features and benefits of our service here.

Call us today on 0800 970 0077 and a business insurance expert will talk you through your no-obligation quote.