If your business has employees, you should think about what extra insurance you might need. Here is a summary of your legal obligations together with other ways you can protect your staff and your business.
It's likely that you're required to have employers' liability insurance. You may want to insure your business against the impact if you, or another key individual, become unable to work. And you can also use life insurance as an employee benefit, helping make your business a more attractive place to work.
We can't always predict the accidents that might happen. The safest thing to do is to choose an appropriate life insurance policy. This guide will help you understand your obligations, the types of insurance available and how life insurance can be used as an employee benefit.
Employers' liability insurance
Employers' liability insurance covers the compensation that may need to be paid if an employee is injured or becomes ill because of their work.
Employers' liability insurance is a legal requirement if you have employees, though there are limited exceptions. You aren't required to have the insurance if:
- you're a sole trader, so you're self-employed and don't have any employees;
- you're self-employed and your only employees are family members;
- you're the only employee of a company that you own at least 50% of;
- your employees aren't based in Great Britain.
Employers' liability insurance applies to any employee, including temporary and part-time workers. Self-employed subcontractors may also count as employees in terms of this insurance, particularly if they're working under your direction using your equipment. If you use any subcontractors, you should give your insurer details.
If you are required to have employers' liability insurance, you must purchase cover of at least £5 million from an authorised insurance company. In practice, many policies provide cover of £10 million and include cover for the legal costs of dealing with a claim.
You must display a copy of the certificate of insurance where employees can see it. This can be in electronic form if it's easy for all employees to access (for example, as part of your online employee handbook).
You are no longer legally required to keep old certificates. However, you should retain a record of your insurance history in case of future claims. Claims for ill health caused by work can arise years or even decades later.
If the Health & Safety Executive discovers that you don't have employers' liability insurance when you should have, the penalties can be severe: £2,500 for each day without the necessary cover and £1,000 for not displaying the appropriate certificate.
Key person insurance
If your business relies on you, or another key individual, there can be serious consequences if that person is no longer able to work. For example, the business might lose sales, or need to cover the costs of finding and hiring a replacement.
Key person or key man insurance helps protect the business against this risk. Typically the insurance pays the business if the insured individual dies. It's worth considering an option to include critical illness cover, so that payment is made if the individual suffers a serious long-term illness.
You can buy key person insurance to cover yourself, other directors of the business or any key employee. For example, you might want to take out cover for your top sales person or for someone with specialist technical knowledge. If you're looking for external financing for your business, you may find that banks and investors require you to have key person insurance.
The level of premiums depends on factors such as the individual's age, whether they smoke and their overall state of health. For larger insured amounts, a medical may be required. If the individual has suffered from a pre-existing condition, such as a previous diagnosis of cancer, this is likely to be excluded from the cover.
Cover is typically arranged for a set term, perhaps five years, with fixed premiums during that time. You can choose to arrange a new policy at the end of that term, but premiums are likely to have increased along with the age of the individual being insured.
You may want advice from an insurance broker with experience in this area. They can help you decide who to insure, what level of cover you require and how long the insurance should run for.
Insurance as an employee benefit
You may want to offer employees various insurances as part of their benefits.
One option is to provide life insurance, and perhaps critical illness cover, to help protect an employee's family if the employee dies (or becomes seriously ill). Life insurance policies can be ‘written in trust' which generally means that payment can be made quickly and without any inheritance tax being deducted.
You can also offer employees income protection insurance. This pays out if they need to take an extended period of time off work because of illness or injury.
Private medical insurance can be another attractive benefit, and may have the welcome side effect of reducing the amount of time off taken by employees with medical problems. More generous schemes can offer cover for the employee's family as well.
If you want to offer these kinds of benefits to several employees, you may be able to reduce the administrative burden by arranging a group scheme that covers all the employees you want to include. You may find it helpful to take advice from an independent financial adviser.