When you set up a small business, one of the first things you need to set up is business insurance. This is a cost that businesses need to consider to help protect their small business.
Business insurance benefits include covering the small business for any risks and claims that may occur from accidents or unforeseen circumstances.
The insurance will help to pay for costs towards those legal bills and any repairs necessary. There are different insurances available for insuring the business.
If no insurance is taken out for the business, the company could get into debt and be forced to close if the entrepreneurs can not pay the costs involved.
There is a price to pay for business insurance and this small business insurance cost needs to be considered by the owner.
We look in this article at whether business insurance is a worthwhile investment and the factors to consider to help you make an informed decision about equipping business insurance for small businesses:
We take a look at the value of business insurance to a company
We consider the main types of business insurance
We look at the risks small businesses face without insurance
We discuss what common issues may occur with insurance providers
We look at is business insurance worth it in all scenarios
What Is Business Insurance?
Business insurance offers protection for businesses. You can make sure the business is protected from financial claims and any employee matters.
Whether you are a smaller business or even a sole trader, building insurance is something to consider when you are self-employed.
Business insurance is an excellent way to protect your small business. Whether it’s damage to premises, mistakes with an order or an employee issue, the insurance covers you to prevent financial issues.
When you decide to get business insurance, there are several different types which can help protect you from different parts of your company:
Key Types of Business Insurance
General Liability Insurance
The main type of insurance that you should consider for your business is General Liability Insurance. This helps to protect small businesses against any claims related to accidents and negligence.
These types of claims are made by customers, employees or members of the public following negligence.
As discussed on ABI, this insurance covers the compensation for the third party which could be personal injury or damage to property.
As a small business, you will need to contact an insurance firm to buy liability insurance. The quotes you will receive for small business insurance costs will be calculated using a book rate. This rate depends on
The type of liability insurance
Claims made by similar companies
The industry and work carried out
The size of the business
Turnover of the company
When you take out this type of insurance, it’s important to know exactly what is covered by the liability insurance.
General liability insurance is the main insurance you can take out for business, but there are also optional types of liability insurance you can take out to help protect your small business.
Property Insurance
When you take out business insurance, you may want to consider property insurance. This helps to protect a company’s business quarters. If there was a fire, theft or vandalism at the property, this type of insurance will help to cover the small business.
Property insurance will help the company to financially recover if anything did occur as a claim could help to pay to fix or recover items.
As with general liability insurance, the cost of property insurance will depend on the value of the property, if there are any employees and the location of the property.
You may also want to take out contents insurance which will protect the assets of the business such as equipment and tech.
If you work from home, your home insurance will cover issues. This does depend on the type of business and whether people work from your residence.
Professional Liability Insurance
You may also want to take out Professional Liability Insurance for your small business. If clients do make a claim against your company for damages provided by your company, this will help to cover the cost of any compensation.
Accidents do occur and if any services or advice provided by you or your employees cause damages to the company, the client could claim against your company.
They can claim if financial costs have been incurred or harm has been done to their business.
Professional liability insurance will cover any professional errors or negligence. It’s worth discussing with at least two companies to get quotes for professional liability insurance.
The cost will vary depending on the type of business you run, the size and the potential risks of your small business.
Employers' Liability Insurance
When you become an employer, you need to purchase employer’s liability insurance.
It’s a legal requirement to obtain employer’s liability insurance for your small business if you are hiring employees.
As discussed on Gov UK, the employee liability insurance must cover you for at least £5 million. This will cover claims related to any injuries or illnesses sustained at your work by your employees.
This needs to be from a verified insurance provider. If you do not take any Employer’s Liability Insurance, you will be charged £2500 a day. You will also be at risk for any claims made by your employees.
Risks Faced by Small Businesses
When you are a small business, there are risks you will face which could put your company in financial strain. Here are some of the most common risks to help clarify why business liability insurance for small businesses is needed:
Common Risks
Lawsuits can occur for negligence from an employee to a client which results in damages to a company.
Employees can claim a company if any damages to them do occur at your company.
Stock damages can occur via negligence or an accident which can then lead to needing to make a claim
Property damage may occur through a fire or theft which can cost a small business to repair or replace items.
If a company needs to go to court, liability insurance can help towards legal fees.
Industry-Specific Risks:
Some industries are at a greater level of risk and insurance is critical:
Accountancy: Whether you are a self-employed accountant or a small business of several accountants, this type of business has higher risks. Advice given by your company could lead to financial damages or even ruin for a client.
Health: Errors in diagnosing or providing treatment can lead to significant claims in the health industry and insurance is necessary.
Construction: Another industry with higher risk is construction. Workers of the company can claim if their health is damaged during their role. Customers can also make lawsuits if there is damage to their property or assets when the construction work is carried out.
Retail: Theft and vandalism can lead to financial ruin for a company. Also, problems with products could result in claims by the public that can be costly for a business.
When Business Insurance Is Worth It
There are some cases where business insurance is a must for your small business:
Legally Required
You are legally required to obtain insurance when you are an employer. You are at risk of fines if you do not put this in place.
If you are in a type of health business, it is also legally mandated to put insurance in place for claims. In the law industry, it’s also vital to get business insurance to help protect the small business.
Also, businesses in the auto trade are required by law to obtain commercial motor insurance.
High-Risk Scenarios
If you work in the construction industry, you are at higher risk of claims against accidents or negligence that can occur at a customer’s site. This can be from the client themselves or one of your own employees receiving an injury.
If your business is in the healthcare industry, you are at higher risk of claims if things go wrong during the procedure. The client could claim if they have been physically or mentally damaged by your work.
The technology industry is also a high-risk sector with software failures and cybersecurity breaches causing significant financial claims.
Protecting Against Major Losses:
If you don’t have any business insurance in place, you could end up having financial losses through claims. This could lead your business into debt and then the company could become insolvent if these are not paid off.
With business insurance in place, this can help ensure you can still run your company and keep it afloat while dealing with potential claims.
Common Issues Between Small Businesses and Insurance Companies
Policy Exclusions and Coverage Gaps
When you take out business insurance, it’s best to look at the exclusions and coverage gaps for your small business.
For instance, a national disaster may not be covered under certain policies that could damage your business premises and assets.
Therefore, it’s worth identifying any gaps to see if additional insurance needs purchasing if you are at higher risk.
Denial of Claims:
There is potential for claims to be denied which can impact a small business and require them to close down due to financial ruin. Here are some of the reasons they may be denied:
The reason for the claim is excluded from the policy in place
The amount required is more than the maximum on the policy
Inaccurate information on the policy
Issues that haven’t been reported on the policy
Premium Increases:
The small business insurance cost can change and make a company wonder if business insurance is worth it after a claim. You can face increased premiums and this can be a challenge for a business to afford if they do go on to make a further claim.
It’s always worth checking what the policy is and what the premiums will change after a claim is made.
How a Lawyer Can Help
Understanding and Reviewing Policies:
A lawyer can help to make sure you choose the right policy for you when you need to take out business insurance. They understand what exactly is required by the insurance and will help you to make the right insurance.
You can then feel rest assured your small business is protected if a claim does occur.
Assisting with Claim Denials:
If your business does make a claim and it is denied, they can look through your insurance to investigate exactly why the claim has been denied. They can then help you go through the appeal process and make sure you have the right documents with you.
They can also negotiate any settlements through claims and can make sure everything goes to plan with the settlement.
Litigation and Legal Action
If any disputes occur, lawyers can help to represent the business in court. They will compile the argument for the business if the dispute escalates. They can help to file the lawsuit, offer you legal representation for the court and help through the trial and the appeals.
Conclusion
We have discussed how important business insurance is to small businesses. Taking the right steps to put liability insurance in place is highly important for businesses to stop them from financial damage.
Liability insurance is a must for certain industries and is legally essential to put in place if you are hiring employees.
The benefits of business insurance should be considered along with the risks of this type of insurance:
Benefits | Risks |
Protects against claims | Premium levels after claim |
Helps towards any legal fees | Exceptions to stock |
Assists in employee issues | Claim dismissals |
Can help protect against stock or property damages | Legal fees are not all covered |
It’s always important to look at the policy to make sure you are clear on what exactly you are covered for and any exceptions in place.
We have also discussed how important it is to consult with a lawyer or an insurance broker to help you obtain the right insurance. Lawhive can help you to carefully assess their risks and guide you on what insurance is needed for a small business.