Only one type of business insurance is compulsory in Great Britain: employers' liability. Everything else, from public liability to professional indemnity, is optional in law but often required in practice by clients, landlords, trade bodies or regulators. Knowing which is which stops you overpaying for cover you don't need and, worse, trading without cover you do.
Which cover is which
| Cover | What it pays for | Compulsory? |
|---|---|---|
| Employers' liability | Compensation claims from employees injured or made ill by their work | Yes, once you employ anyone, with exceptions below |
| Public liability | Claims from customers or the public who are injured, or whose property is damaged, because of your business | No, but clients and venues often require it |
| Professional indemnity | Claims that your advice, design or service was negligent and caused financial loss | Not generally, but some regulators and clients require it |
| Product liability | Injury or damage caused by goods you sell or supply | No |
| Business interruption | Lost income after an insured event such as a fire or flood | No |
| Buildings, contents and stock | Your premises, equipment and stock | No, though a lease or lender may require it |
Employers' liability: the one you can't skip
GOV.UK says to get employers' liability insurance as soon as you become an employer. The legal minimum is £5 million of cover from an authorised insurer, and many policies offer £10 million. You can be fined up to £2,500 for every day you are without suitable cover, and up to £1,000 for failing to display the certificate or to show it to an inspector. You can display the certificate electronically, for example on a website or work intranet, as long as employees can easily read it.
There are exceptions. A sole trader with no employees doesn't need it, and neither does a limited company whose only employee is a director who holds a controlling share of the company, although the exact share test is set out on GOV.UK. A limited company with any other employee is not exempt, and the family business exemption applies only to unincorporated businesses. The duty can reach casual workers, apprentices and some volunteers depending on their status, so check with your insurer, and confirm that the insurer is authorised on the FCA Register.
Public liability and professional indemnity
Public liability isn't a legal requirement, but clients, landlords and venues will often ask for a certificate before you start work, and a single injury or property damage claim can exceed a small firm's savings. Limits are commonly offered in steps such as £1 million, £2 million, £5 million and £10 million. Choose by the contracts you sign, not just by price.
Professional indemnity matters if you give advice, design, consult or deliver IT, accountancy or marketing services, because a mistake can cost a client money in a way public liability won't cover. Some regulators and professional bodies require it, and clients often write it into contracts. It is usually written on a claims-made basis, so it responds to claims made while the policy is in force. That means you should keep cover, or buy run-off cover, after you stop trading.
Other cover worth considering
- Business interruption, which replaces income while you can't trade after an insured event
- Buildings, contents and stock, if you own or lease premises or hold valuable equipment
- Commercial vehicle insurance. Any vehicle on the road needs at least third-party cover by law, and a business vehicle needs a policy that covers business use
- Legal expenses, for employment, tax and contract disputes
- Cyber insurance. See our guide to cyber liability insurance for UK small businesses, which also explains the cover included with Cyber Essentials
How to buy it
- List what you do, how many people work for you, your turnover, your premises and any contract requirements for cover.
- Choose limits from those contracts rather than from the cheapest quote.
- Compare quotes with the same limits and excess, through a broker or direct, and check the firm on the FCA Register.
- Read the exclusions, such as work at height, work abroad, subcontractors and hot work.
- Answer every question accurately. Under the Insurance Act 2015 a business must make a fair presentation of its risk, and a careless or false answer can reduce or void a claim.
- Put the renewal date in your diary and recheck your headcount and turnover each year.
If you are setting up your finances at the same time, our guides to the business bank account for a limited company or sole trader and to business loans in the UK cover the next steps.