With the myriad costs that are involved in setting up or running a business, it’s tempting to go for the minimum level of insurance to save costs, especially in the current climate. Just getting insurance against risks to third parties only could mean an unexpected loss would cause financial hardship and destroy your business. You cannot avoid or cut corners with some types of insurance which are compulsory. Others, although not legally required, are extremely desirable and lacking them could also leave you potentially exposed. It makes sense therefore to get at least adequate insurance to avoid the risk of losing it all.
Business insurance usually covers three areas: liabilities, property or buildings and business assets or equipment. Three types of cover are compulsory – you have no option but to have adequate insurance in place.
Employers’ liability insurance (Employers’ Liability (Compulsory Insurance) Act 1969) is required by law even if you only have one employee. The suggested legal minimum amount of cover is £5 million to protect against any injury, illness or disease the employee could sustain in the course of his/her employment, but in practice most policies offer cover up to £10 million.
Public liability insurance cover is also legally required to pay any damages caused by bodily injury, illness or loss of or damage to property that may fall due to a member of the public by you, the insured party. The limit of indemnity is the maximum amount the insurer will pay in the event of a claim being made and is usually up to £5 million.
Product liability insurance is required so you can meet your legal liability to pay damages that may be claimed by a third party due to using a defective product you supplied. Businesses that sell products to other businesses or the public are at risk if a faulty product causes damage or injury. The manufacturer of that faulty product is usually at risk if things go wrong, but the liability can fall on you, the supplier, if the manufacturer of the product goes bust.
You can get by and comply with the law with just those three insurances in place. However, there are some other forms of cover that prudence would suggest are also well worth having.
We live in litigious times and businesses can be sued for damages over a wide range of complaints. Professional indemnity provides protection against any action by those who believe they have received bad or negligent services and more importantly maintain they have incurred a loss as a result. Most professional bodies insist on professional indemnity cover as a condition of membership.
SMEs in particular depend heavily on a small number of key people. Key man insurance cover cannot replace a vital member of staff, but it can at least provide short term financial help to reduce the impact of losing an important member of your team at short notice.
Business Interruption cover is useful to compensate for a short fall in gross profit or having to pay any increased costs and fees that could result from any event that could seriously disrupt your
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