Types of Business Insurance for Small Businesses

Find out what types of business insurances small businesses should have, and which are required by law.

Helen Cockle

Protecting your company from risk is an important part of starting your own business. There is a number of different types of business insurance for small businesses you should consider. This short guide looks at five different types of insurance for small business.

Public Liability Insurance

Many people have liability insurance for personal protection in their home insurance - that means that, if another person was to get injured or become ill on their property, the liability insurance would protect its owner from being personally liable. Public business liability insurance functions in a similar way - it protects business owners from being liable for bodily injury or property damage during another person's visit to your company or store. If your business is responsible for another person's injury, however, not an employee's, liability insurance would cover medical bills and lost wages on their part.

Employee Liability Insurance

This insurance cover is only relevant to you if your business has employees or if you have forecasted that you will have employees in the future. This type of insurance provides cover if your staff members become ill or injured whilst at work. If you do not have employee liability insurance and a staff member gets hurt and they are unable to work, you could be responsible for covering their financial needs. Employee liability coverage can help with medical costs, lost wages, and disability benefits.

Product Liability Cover

Product liability insurance covers legal fees and compensation in the case of a customer being injured or their property damaged by a product you have sold. If you are the manufacturer of the products sold by your company, you are very likely to be liable for any compensation or legal fees. However, in some cases, you may even be liable if you have not produced the products, but they 'bear your company's name'. This can also be the case if you have, for example, repaired a product you have not initially produced. In the United Kingdom, under the Consumer Protection Act, manufacturers, distributors, suppliers, and retailers could be liable for any damage, injury, or death caused by a product or any of that product’s components.

Business Interruption Insurance

This type of insurance can help small business owners by covering any lost income in the cash of your business having to shut down due to specific reasons covered by the policy. This could, for example, include fire damage, theft, or falling objects. In such an event, business interruption insurance would pay for any monies lost due to damaged merchandise, lost earnings, as well as any expenditure caused by the damage (eg moving business premises).

According to Google Trends data, searches for business interruption insurance increased almost 2000% in March 2020. While any business interruption cover taken out now would be unlikely to cover interruption by the current pandemic, Covid and Lockdown were not factored into many business forecasts so you don’t want to be caught out again.

Commercial Building Insurance

Like building insurance on your home, a commercial building needs insurance - whether it is open to the public or not. Building insurance will cover any repair or rebuild costs of the building in question. It provides your business premises with protection in the case of floods, riots, storms, subsidence, burst pipes, fire, or theft. You could also consider taking out buildings content insurance, which covers properties inside the building (eg equipment or stock).

Small Business Insurance  FAQs

  • Which types of business insurance are required by law?

Under UK law, you are only obliged to get an employer's liability cover. However, some professional bodies may require you to get other types of business insurance. This will depend on the sector you are operating in - accountants, for example, are required to obtain professional indemnity insurance.

  • How do I know if I need small business insurance?

In the UK, it is required by law to obtain employer's liability insurance, if you are a business with employees. However, certain professional bodies will require other types of insurances for your company to operate. In general, it is advisable to look at different types of insurance to protect your business.

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