Starting a business can be a challenging process. As you grow, you invest money and time in your brand, equipment and premises - and from day one these are all at risk. Jazz Gakhal, head of Direct Line for Business, answers key questions about business insurance
Why is business insurance important?
Even with a brilliant idea supported by resources, ambition and hard work, there's no way to perfectly predict the progression of your new business. Unexpected obstacles may appear along the way, and opportunities that could have great payoffs could challenge you.
Business insurance will give you peace of mind, leaving you to focus on getting your venture off the ground.
Insurance might seem like a concern for big firms, with an established base of customers and out-of-home premises, but a business owner should be thinking about financial security whatever the size of the venture. There is no minimum turnover that a business needs to reach before it should be covered.
If your plan is to grow your business, then you should bear this in mind when taking out insurance. Ideally it should be able to grow with you to meet future requirements, such as new markets and product developments.
It's important to keep your insurer informed of any material changes to your business activities along the way, such as starting to export to new countries, as this may affect the cover you need.
What types of insurance might my business need?
There are a number of different types of insurance available for businesses. The most common are:
- public liability;
- employers' liability;
- professional indemnity;
- product liability;
- business contents and stock;
- business equipment;
- business premises;
- business interruption.
How do I know which business insurance to get?
Public liability insurance covers claims made against you by members of the public arising from accidental injury or property damage caused by your business' activity. You would need this if, for example, a customer tripped on a carpet at your premises and injured themselves, and then made a claim for compensation.
It is a legal requirement to have employers' liability insurance if you employ staff. This insurance provides cover for claims that your staff make if they suffer injury or illness due to your business. You will need a minimum level of £5 million, although most insurers offer a cover limit of £10m.
If you charge a fee to provide customers with advice or professional services, then you should consider professional indemnity insurance. This will insure against claims for financial and reputational damage, including situations where a client believes they've been given poor advice and files a claim against you or your business.
If you supply products to customers, then you may want product liability insurance. This will cover you should something you sell injure somebody or make them ill, or damage their property. The insurance will cover costs incurred in consequential legal action.
You can also choose additional cover options such as IT insurance, cover for business vehicles, and business contents and stock cover. This will insure you in the event of a break-in, fire or flood if items are damaged or stolen.
You can also choose to insure your stock when you're away from your premises, such as if you take it to a trade fair or exhibition, or while it's in transit on the way to a customer.
Cover for equipment used away from your business premises is often an optional extra, which you may need if you travel a lot or work elsewhere. Business premises insurance will cover you in case of damage to your shop or building, and business interruption cover will insure you for the additional costs of working elsewhere if your workplace is temporarily damaged or disrupted, as well as loss of earnings if you're unable to work normally.
Finally, cover options such as directors' and officers' liability insurance, legal costs insurance and key person insurance may become necessary further down the line - if your business really takes off.
How can I make sure I'm not over- or under-insured?
Speak to your insurer. They'll be best placed to help you understand the different types of insurance available, and they can also help explain the terms and exclusions on the policy. Insurers understand that each business is unique, and that your needs may be different to those of another, seemingly similar venture.
The British Insurance Brokers' Association (BIBA) has also created a guide to help you check whether you have enough cover - download How to avoid under-insurance (pdf) from the BIBA website.
What if I need to make a business insurance claim?
Unfortunately, sometimes things can go wrong and you will need to claim on your business insurance. If an event occurs, first try to stop any further damage occurring, and then contact your insurance provider as soon as possible to confirm your cover.
Take photographs if you're able to, to provide evidence for your claim, and locate all the necessary receipts, bills and legal documents you may need.
If you take these steps, you'll help to avoid the situation getting any worse, and your insurers will have the evidence they need to be able to respond to the claim as quickly as possible.
How can I minimise insurance risks in my business?
There are a number of things you can do to minimise business insurance risks.
It helps to keep all the important documents you would need in the event of a claim in a separate place - perhaps at home. This means if your premises are damaged, you'll be able to lay your hands on them with minimal hassle. Make sure you take copies of documents, receipts and contracts, and store them digitally in case of damage.
When you move into your premises, take a good look around and make sure you understand any vulnerable areas (for example, access points that might be attractive to burglars). Educate your employees about health and safety in the workplace and make sure they fully understand any danger related to equipment (including IT equipment), where the fire exit is, and who to contact in the event of a leak or electrical outage.
Health and safety policies should be clearly written down and accessible to everyone who enters the premises.
It's worth drawing up a business continuity plan, so you're able to continue operating in the event that you're unable to work in your regular workplace. This could take into account physical concerns such as floods and fires, as well as technical worries, including loss of data and security breaches.