Starting a business comes with a long list of priorities. Finding customers, managing cash flow, setting prices and building a reliable operation can easily push insurance further down the list.
However, the right business insurance can protect a start-up from costs that would otherwise have to be paid directly from the business. A customer injury, professional dispute, cyber attack, damaged equipment or employee claim can be difficult for an established company to absorb and potentially even harder for a new business with limited reserves.
There is no single insurance package that every start-up needs. The right cover depends on what your business does, whether you employ anyone, where you work, what equipment you own and the risks your customers are exposed to.
If you are starting out on your own, our guide to insurance for self-employed people provides additional guidance for sole traders, freelancers and contractors.
What Business Insurance Does a Start-Up Need?
Start by looking at how the business operates rather than simply buying a collection of policies.
Ask yourself:
- Do customers or members of the public visit me?
- Do I visit customer premises?
- Do I give professional advice or recommendations?
- Do I employ anyone?
- Do I have directors or senior managers?
- Do I store customer information?
- Do I take payments online?
- Do I own expensive computers, stock, tools or equipment?
- Do I work from commercial premises?
- Do I use a vehicle for business?
- Could one incident prevent me from trading?
Your answers will help identify the risks that should be considered.
Professional Indemnity Insurance
If customers rely on your professional knowledge, designs, advice, calculations or recommendations, Professional Indemnity Insurance may be important.
Professional indemnity insurance is designed to respond to certain claims alleging that professional work, advice or services caused a client financial loss.
This could include allegations involving:
- Professional negligence
- Incorrect advice
- Errors or omissions
- Design mistakes
- Failure to deliver an agreed professional service
- Loss of documents or data, where covered
- Breach of professional duty
It can be particularly relevant to consultants, designers, accountants, IT businesses, marketing companies, architects and other professional service providers.
The exact events covered, exclusions and limits will depend on the policy.
Some clients, professional bodies and contracts may also require a particular level of professional indemnity cover before work can begin.
Employers’ Liability Insurance
Taking on your first employee changes the insurance responsibilities of your business.
In Great Britain, most employers are legally required to have Employers’ Liability Insurance of at least £5 million from an authorised insurer. There are limited exemptions, so a business should check its individual position rather than assuming the requirement does or does not apply.
Employers’ Liability Insurance helps protect the business if an employee becomes injured or ill because of their work and makes a claim against the employer.
A business that is required to have the insurance can face a fine of up to £2,500 for every day it is not properly insured.
Do not automatically assume that every volunteer or unpaid helper has exactly the same legal status as an employee. Their status and the appropriate insurance arrangements can depend on the circumstances, but businesses should still make sure their policies properly reflect anyone working on their behalf.
Public Liability Insurance
Public Liability Insurance protects against certain claims made by members of the public or other third parties following injury or property damage connected with your business activities.
For example, a claim could arise if:
- A customer slips at your premises.
- You accidentally damage property while working at a customer’s site.
- Equipment causes injury to a visitor.
- Your work causes accidental damage to third-party property.
Public liability insurance is not generally a legal requirement for every UK business, but clients, landlords, trade associations or contracts may require it.
It can be particularly relevant for tradespeople, shops, salons, hospitality businesses, contractors, consultants visiting client premises and businesses that deal directly with the public.
Smaller businesses can sometimes underestimate liability risks because they assume serious claims are mainly a concern for large companies. Our guide to why SMEs need business insurance looks at why even relatively small incidents can create significant costs.
Directors & Officers Insurance
Running a limited company can create personal responsibilities for its directors and senior decision-makers.
Directors & Officers Insurance is designed to provide protection against certain claims alleging wrongful acts committed by directors or officers while carrying out their management duties.
Claims can potentially involve allegations such as:
- Breach of duty
- Breach of trust
- Neglect
- Errors
- Misleading statements
- Employment-related decisions
- Regulatory matters
- Decisions made without appropriate authority
Depending on the policy and circumstances, cover may include legal defence costs and certain financial liabilities arising from covered claims.
A director should not assume that forming a limited company means they can never face allegations personally.
Cyber Insurance
Almost every modern start-up relies on technology.
Even a small business may use:
- Cloud accounting software
- Online banking
- Customer databases
- E-commerce systems
- Cloud storage
- Online booking systems
- Remote working
- Card payments
- Business websites
This creates cyber risk from the first day of trading.
Cyber Insurance can provide protection against specified costs arising from insured cyber incidents.
Depending on the policy, this may include areas such as:
- Cyber incident response
- Data breach costs
- Forensic investigation
- System restoration
- Business interruption
- Cyber extortion
- Legal support
- Notification costs
Insurance should sit alongside sensible cyber security rather than replace it.
Start-ups should consider strong passwords, multi-factor authentication, regular software updates, staff awareness, controlled user access and reliable backups from the outset.
Do You Need Insurance if You Work From Home?
Working from home does not automatically mean your normal home insurance covers everything connected with the business.
Tell your home insurer if you are operating a business from the property where required.
Business equipment, stock, customer visits and alterations to the way the property is used can all affect insurance arrangements.
Consider what you keep at home, including:
- Computers
- Monitors
- Stock
- Specialist equipment
- Tools
- Customer property
- Business records
If customers, employees or couriers regularly visit the property, this can also change the risk.
Protect Your Business Equipment and Stock
A start-up may have fewer assets than an established company, but replacing them can be proportionally more difficult when cash flow is tight.
Create an inventory of your important business assets.
This might include:
- Computers
- Phones and tablets
- Machinery
- Tools
- Stock
- Furniture
- Specialist equipment
- Point-of-sale systems
Use realistic replacement values when arranging insurance rather than simply relying on what equipment originally cost.
As the business grows, review those values. Gradually buying more equipment and stock can leave a business with insurance limits that no longer reflect what it actually owns.
Our guide to business underinsurance explains why keeping insured values current matters.
Consider Business Interruption
Property insurance can help with physical damage, but damage to the premises or equipment can also stop a business trading.
Business interruption insurance is designed to address specified financial losses following an insured event that disrupts normal operations.
A start-up should ask:
What would happen if the business could not operate for a month?
Consider expenses such as:
- Rent
- Wages
- Finance agreements
- Utilities
- Software subscriptions
- Loan repayments
- Lost income
For some businesses, replacing damaged property is only half the problem. Surviving the period when customers cannot be served can be equally important.
Do You Use a Vehicle for Business?
Do not assume a normal personal motor policy automatically covers business journeys.
If you use a car or van for your business, check that the insurance correctly reflects how it is being used.
This may include:
- Visiting customers
- Travelling between workplaces
- Carrying tools
- Making deliveries
- Transporting stock
- Visiting suppliers
The correct motor cover will depend on the vehicle and business use involved.
Does Your Start-Up Need Every Type of Insurance?
No.
Buying unnecessary cover wastes money, while missing an important risk can leave the business exposed.
Instead, build your insurance around the way you actually operate.
For example:
A freelance graphic designer working from home may be more concerned with professional indemnity, cyber risks and business equipment.
A builder may need public liability, tools cover, commercial vehicle insurance and, once employees are taken on, Employers’ Liability Insurance.
A new retailer may need cover for stock, contents, public liability, business interruption and the premises.
A technology company employing staff and handling customer data may need Employers’ Liability, professional indemnity and cyber insurance alongside other business protection.
The important point is that the policy should follow the risk.
Review Your Insurance as the Business Grows
The insurance you need on your first day of trading may be very different from what you need two years later.
Review your arrangements whenever the business changes significantly.
Examples include:
- Employing your first member of staff
- Moving into commercial premises
- Increasing stock
- Buying expensive equipment
- Taking on larger contracts
- Launching new services
- Starting to sell online
- Working overseas
- Buying business vehicles
- Taking on directors
- Collecting more customer data
- Increasing turnover substantially
Do not wait automatically until renewal if the nature of the business changes.
Business Insurance Start-Up Checklist
When reviewing your new business, consider:
- Professional Indemnity Insurance if clients rely on your professional services or advice.
- Employers’ Liability Insurance if you employ people and the legal requirement applies.
- Public Liability Insurance if you interact with customers or members of the public.
- Directors & Officers Insurance if your company has directors or senior managers.
- Cyber Insurance if your business relies on data or digital systems.
- Buildings or contents cover for business property and equipment.
- Stock insurance where you hold goods for sale.
- Business interruption insurance where disruption could affect income.
- Commercial vehicle insurance where vehicles are used for work.
- Specialist cover relevant to your particular industry.
Not every start-up will require everything on this list.
The purpose of the checklist is to identify what could realistically go wrong and decide which risks should be insured.
Protect the Business You Are Building
When you are starting a business, insurance can feel like another expense at a time when every pound matters.
The more useful way to look at it is to consider the financial effect of something going wrong without cover.
Could you personally fund a legal claim? Could you replace all your equipment after a fire or theft? Could your new business survive several weeks without income?
Start with the risks capable of causing serious financial damage and build suitable insurance around them.
As the company develops, keep reviewing the cover so that your insurance grows with the business rather than remaining based on how it operated when it first opened.
