Small business insurance for beginners

When starting a business, it could be hard to know what insurance you need.

With the help of Simply Business, we have put together a quick and easy guide of the main types of small business insurance that are available.

This blog could help you get to grips with the options and make sure your business is covered if anything goes wrong.

Business insurance needs

Do I need small business insurance?

Business insurance helps protect your new business from risks and costs you might not see coming.

It safeguards your business assets, such as equipment and inventory, from loss or damage due to theft, fire, or other unforeseen events.

Having insurance could be important in the event of a legal claim against your business, covering legal fees and compensation claims.

It could also cover accidents involving customers or staff, helping to ensure that your business can continue operating smoothly.

Insurance could also help to improve your business's credibility, reassuring clients that you are responsible and reliable.

Is business insurance mandatory?

Some forms of insurance, such as public liability insurance, are not required by law.

Others – like employers' liability insurance – are mandatory if you have employees.

This means that you are covered for any claims made by employees for work-related injuries or illnesses.

Do I need business insurance if I work from home?

You should use the types of insurance your kind of business needs, even if you’re home-based.

Standard home insurance may not cover business activities, equipment, or any stock you keep at home, nor protect you if something happens to a client who visits you in your home.

Business insurance can cover stolen or damaged equipment and protect you if a client has an accident at your property.

Do I need business insurance for an online business?

Online businesses face risks, such as cyber attacks, data breaches, or issues with products and services sold online.

Business insurance that covers online operations may also include cyber insurance, professional indemnity, or product liability cover (depending on what you do).

Even though you may not meet your clients face-to-face, insurance could still protect you and your business against claims and unexpected events that could have a negative impact on your start-up.

Do I need business insurance as a sole trader?

As a sole trader, you’re personally on the hook for debts and claims, so insurance is especially useful.

Insurance such as public liability, professional indemnity, or even tools and equipment cover could protect you if something goes wrong.

Although having business insurance is not always a legal requirement, it could save you from costly legal or compensation costs.

Do I need business car insurance?

Many start-up owners require private transportation to complete their work – whether that's meeting clients, visiting sites, or making deliveries.

Standard car insurance may only cover personal use and commuting, while business car insurance is designed to protect you and your vehicle when it’s used for business purposes.

If you don't have the right business car cover, your insurer could refuse a claim if there is an accident while you are working.

What types of insurance does my business need?

The insurance your business requires depends on your industry, business size, and the risks you face.

Different trades and professions need different cover, so tailor it to your situation.

Look into different types of business insurance to pick what fits your start-up.

Types of small business insurance

Public liability insurance

What it is: Public liability insurance covers legal costs and compensation payments if someone outside your business (a client, visitor, or member of the public) is injured or their property is damaged because of your business.

This is important if you meet clients, work in public spaces, or have customers on your business premises.

Examples: Paying for a client's laptop if you spill coffee on it; covering a claim if a customer slips on a wet floor in your shop.

Important information: In the UK, public liability insurance is not a legal requirement.

However, some contracts – especially those in the public sector – will require a minimum level of cover.

Employers' liability insurance

What it is: Legally required if you have employees. 

Covers claims from staff for work-related injuries or illnesses.

Examples: It could cover you for claims if an employee trips on loose carpet and breaks a leg or a worker is injured on a construction site.

Important information: You must have at least £5 million of cover or you could be fined up to £2,500 per day.

However, there are some exceptions to the law.

For example, if you only employ close family members, you’re not legally obliged to have cover.

Professional indemnity insurance

What it is: This protects you if a client says your work or advice caused them financial loss. 

It covers legal costs and compensation up to your policy limit.

It could therefore be important for businesses that offer advice, provide a professional service, or handle client data.

Examples: If you copied the wrong person into an email discussing sensitive client matters, your client could sue you for breaching confidentiality.

Or, if your architecture company drew up faulty plans and a building later collapsed as a result, your client could seek compensation.

Important information: Some professions must have this insurance, including solicitors, accountants, financial advisers, architects, and some healthcare professionals.

Other Covers

Every business has slightly different insurance needs, which is why it could be important to get a policy that's tailored to your business.

There are plenty of other business insurance covers that you might consider adding to your policy, including product liability insurance, stock cover, office equipment insurance, and turnover protection.

A tech company may need cyber insurance to protect against data breaches

Read more about self employed insurance for start up businesses.

How do I choose the right insurance provider?

Choosing the right business insurance provider may be a key step in best protecting your small business.

You could consider a number of things to help you make the right choice, including:

• good customer reviews
• reputation
• how straightforward their claims process is
• experience in your industry.

It may be a good idea to compare quotes from several providers to check that you’re getting the best value.

Remember – the cheapest option may not always be the best, so you might want to consider what’s actually covered and any exclusions before you make your final choice.

Some providers may offer flexible policies that can be tailored to your specific needs, such as covering your equipment, employees, or specialist services.

Deciding how much cover you need

The amount of insurance cover you need will depend on various factors, including:

• the size of your business
• the risks you face
• the cost of your equipment.

You may want to consider what the worst-case scenarios could be for your business – and ensure that you have enough protection to cover your assets, potential legal costs, and compensation.

If you’re unsure of how much cover you need, you might consider consulting an insurance broker.

They could objectively assess your cover needs, so you don’t end up overpaying for unnecessary extras or being underinsured.