Do I need business insurance?

If you run a business, you’ll likely need some kind of business insurance to protect your business against the worst. 

But ‘business insurance’ is a really broad term. The type of insurance that fits your business depends on what you do, who you employ and how you interact with customers. 

Read on to find out more about your options.

Do I need business insurance?

There are four main reasons to protect your business with insurance. The first is probably the most important: if you’re insured, you feel secure. Once you’re confident that you’re covered, you can focus on making your business the best it can be.

You also need insurance to:

• Protect against legal action: Whatever the cause, clients, customers or employees may decide to raise a claim against your business. The legal process could mean you have to pay out a lot of money, but business insurance can help by paying legal fees and compensation.

• Satisfy regulatory bodies: Depending on your trade, you may be legally required to carry certain insurance. You might also need insurance to become a member of your industry’s trade association.

• Meet contractual obligations: Some clients won’t do business with you unless you’re properly covered. 

What insurance do I need for my business?

Only one kind of business insurance is required by law. If anyone works for you on a paid basis, you must have employers' liability insurance. The only exception is for unincorporated family businesses, where everyone working for the business is a close relative.

Certain employers’ liability policies also cover volunteers. Although there’s no law that says you absolutely must cover volunteers, you should probably consider it part of your duty of care.

You may need to display your business insurance certificate to comply with HMRC guidelines or show it to inspectors if asked.

Aside from that, there’s no hard requirement for a business to carry insurance. If you’re looking to really protect your business, though, it’s probably sensible to consider going beyond the legal minimum.

What type of insurance does my business need? 

Business insurance can cover all kinds of businesses and business functions. You may benefit from the protection of one or more of the key types of business insurance:

• Employers’ liability insurance: This is a legal requirement if your business employs anyone who is not a close family member. If you don’t have it, HMRC can fine you £2,500 for every day you are not properly insured. Need to know more? Here’s our full guide to employers’ liability insurance. 

• Public liability insurance: This protects you if someone becomes ill, injured, or has their property damaged due to something your business has done. It’s potentially valuable if you have any contact with the public, whatever your business happens to be. If you don’t want to pay compensation or legal fees out of pocket, it may be worth thinking about. Check out our complete guide to public liability insurance.

• Professional indemnity insurance: This is useful if a client makes a claim against you for financial losses, reputational harm or work that isn’t up to scratch. However good you think your business may be, your clients might not share your opinion. Some trade bodies require this kind of insurance, too. Find out more with our professional indemnity insurance guide.

You can get all of these in a single policy and add new cover later, as your business changes. 

Specialist businesses can also benefit from more specific insurance. You may be able to add the following to a business insurance policy:

• Tool insurance 

• Equipment insurance 

• Personal accident insurance 

• Stock or contents insurance

• Premises insurance

How much business insurance do I need?

The level of insurance you need depends on the nature of your business, how many clients and employees you work with, and the amount you might have to pay out in case of a claim. 

If you’re putting on public events, for example, you might choose a larger public liability policy. 

On the other hand, if you do a lot of consulting work with clients, spending more on professional indemnity insurance could make sense.

The legal minimum for employers’ liability insurance is fixed at £5 million, but some firms prefer cover of £10 million. 

You can read our How much business insurance will I need? guide for more detail on this subject.

Do I need insurance to start a business?

Legally, you don’t need anything except employers’ liability insurance to start a business, and that’s only if you have employees. However, business insurance can give you peace of mind when starting your business.

You can buy insurance before you register your business or begin actively trading. Your insurer just needs to know a little about your business, such as your trading address, the type of business you’re running and your turnover. Apart from that, you’re free to take out a policy as soon as you like.

That said, the terms and conditions of many policies expect your business to adhere to appropriate regulations, so you need to make sure everything is in line before you start trading. If you begin trading before getting the right trade licenses, for example, you might invalidate your cover.

Do I need insurance as a sole trader?

A sole trader is essentially the same as any other business, so you should approach business insurance in the same way. This is true even if you’re self-employed and working on your own. If you want to insure yourself against claims from clients or members of the public, you can.

The big difference is that you might not need employers’ liability insurance, but don’t forget to get it later if you take on staff. 

If you work from home, your regular home insurance might be enough to cover most things that could happen. Check your policy carefully, though – if you’re in doubt, speak to your insurer.

You may wish to consider public liability insurance if clients and customers visit your home as part of your business. If you have a workshop or kitchen in your home that’s essential for your business, commercial premises insurance may cover you when home insurance doesn’t.