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Business insurance explained

‘Business insurance’ is a general term that covers the different types of insurance policies that are advisable or may be a legal requirement for your business or enterprise.

Business insurance options include:

Business premises insurance, also known as commercial buildings insurance
Business assets insurance, also known as business contents insurance
Public liability insurance
Employers‘ liability insurance
Professional indemnity insurance
Other specialist policies
The level of cover available for each different type of policy is subject to the individual policy terms of each insurance company. You should always check the policy documents to see what's included as standard and what is considered an ‘optional extra’ i.e. available at an additional cost.

In this part of our guide we look at insurance for business premises and contents.

Insuring your business premises
If you have business premises then a business premises insurance policy will cover your commercial buildings against a range of risks, for example fire, explosion, storm damage and flooding. Some insurance companies offer ‘all risk’ insurance which provides cover for other damage and loss as specified in the policy terms, including accidental damage cover.

What level of cover will I need?

When you take out a business premises insurance policy you will need to insure the premises for the full rebuilding cost, also known as the ‘reinstatement value’, rather than the market value. The reinstatement value is the cost of rebuilding the property in the event of a total loss; your insurance company may give you the option to add on an additional percentage to protect against underestimates and index linking.

Don't be tempted to under-insure in order to cut costs, as should you need to claim then you will be limited to the amount you insured the premises for regardless of whether the actual loss or damage is more.

What if I am a tenant?

If you are a tenant then it may be your landlord who is responsible for insuring the premises, unless the business has a shop front, in which case the responsibility for acquiring suitable insurance cover will normally lie with the tenant. If your landlord is responsible for insuring the premises and your lease complies with the Code for Leasing Business Premises in England and Wales 2007 then the insurance should be fair, reasonable and represent value for money. You have the right to request details of any commission received by your landlord and the details of the relevant insurance policies relating to the premises.

What if I am a landlord?

If you are a landlord then there will be a variety of policy options available to you, including policies for premises that are unoccupied or let.

Insuring business assets or equipment
Insurance for business assets or equipment is also known as business contents insurance. It's designed to cover items such as stock, machinery or equipment and other contents.

What are my policy options?

When it comes to insuring business assets or equipment you will have a number of options open to you. In terms of cover, you'll normally have the choice of ‘replacement as new’ insurance or ‘indemnity’ insurance.

Replacement as new policies are also referred to as ‘new-for-old cover’ and, if the claim is valid, the policy will meet the full cost of replacing items if they are stolen or destroyed; alternatively, the cost of repair will be met if the items are damaged. Unlike replacement as new policies, ‘indemnity’ policies deduct the cost of wear and tear so that the policyholder is put back in the same state or financial position they were in prior to the loss.

There is also the option to take out a ‘business interruption’ policy to insure against loss of profits and increased overheads resulting from, for example, key pieces of equipment or machinery being damaged or stolen.

Working from home
If you operate your business from your home, or work from home on a regular basis, then you may need a specialist insurance policy as standard home insurance will not provide cover for business-related risks.

In the next part of our guide we explain what public liability insurance is and why it's necessary.

Public liability insurance explained

There aren't many types of business that can justify not taking out public liability insurance. Business, by its very nature involves contact with people outside of a company and it is these people or ‘third parties’ that public liability seeks to protect.

What does public liability insurance cover?
If your business is responsible for injuring a member of the public or ‘third party’ (i.e. not an employee of your business) or for damage or destruction of their property, public liability insurance would cover you for any related costs, such as compensation payouts, the cost of repairing damage, or legal expenses incurred in defending the case.

Why is public liability insurance necessary?
This type of insurance is there to protect your business from unexpected financial loss. Public liability claims have the potential to run into the thousands and your business may not have the finance to cover that cost.

Accidents can happen at any time and it could be something very simple or something really serious. For example, you might spill your coffee on a client's computer and damage it, or someone might trip on a piece of your equipment or slip on your wet floor. On the more serious side, your faulty workmanship might cause a flood or fire, or you could be responsible for a life-threatening injury.

If you were found liable for such an incident, you would end up facing a financial claim that could potentially cripple your business. Public liability protects your business from a financial standpoint and it protects the interests of public by ensuring they can claim appropriate compensation.

How much public liability cover will I need?
The level of cover you will need depends on the risks involved with your business. You can take as little as £2 million if your business has little interaction with the public or as much as £10 million if your business is high risk or involved with government contracts. Certain business types might be subject to certain requirements by clients, for example a DJ would need to make sure he or she has the correct level of cover required by a venue.

How can I get a good deal?
You can buy public liability insurance as part of a single policy which can also include other covers relevant to your business.

Premiums for business insurance can vary widely and depend on what is included and excluded in the policy. The good news is that these days a business doesn’t have to rely on a broker. It's easy to compare quotes and buy online.

In the next part of our guide we'll explain what employers‘ liability insurance is and why it's compulsory for many businesses.

Employers' liability insurance explained

Employers’ liability insurance is compulsory for businesses that have one or more staff, but it’s still important to know what it covers and why it is a legal requirement.

Why is employers’ liability insurance necessary?
Employers’ liability cover is there to help you protect the interests of your employees and to complement your health and safety processes.

If an employee is injured or they contract a disease as a result of, or in the course of their employment, they are entitled to claim compensation from the business if it can be proven that the employer was at fault. Employers’ liability covers the cost of the compensation along with any legal fees you might incur if you had to defend the case against you.

Why is public liability insurance necessary?
This type of insurance is there to protect your business from unexpected financial loss. Public liability claims have the potential to run into the thousands and your business may not have the finance to cover that cost.

How do I get the right level of cover?
The level of insurance cover you choose will depend on the number of employees you have and the risks that your business poses to staff.

The minimum legal requirement is £5 million but many insurers prefer businesses to take out £10 million to be sure that all eventualities are covered. This very fact highlights the importance of the cover, as Employers’ liability claims can be very large and a business would not be able to cover the cost itself.

What happens if I don't take out Employers’ liability cover?
If you do not take out Employers’ liability cover you could face a £2,500 fine for every day that you weren't covered. This fine can be backdated and so it could be disastrous for your finances if you were found not to have it for a significant period of time.

Are there any exceptions?
You do not have to take out Employers’ liability cover if your only staff are close family members or if you are a single person limited company.

What else do I need to know?
Once you have taken out Employers’ liability insurance, you are required to display a current certificate in your workplace. The certificate must be produced on request.

Employers should be aware that former employees can make claims and should therefore keep a record of all expired insurance certificates in case they are needed.

How do I take out Employers’ liability insurance?
You can take out Employers’ liability insurance as part of your business insurance policy, along with other relevant cover.

In the next part of our guide we explain what professional indemnity insurance is and look at other specialist policy options.

Specialist business insurance policies explained

In this, the final part of our guide we take a look at professional indemnity insurance and other specialist business insurance policies.

Professional indemnity insurance
Professional indemnity insurance is designed to protect businesses against compensation claims made by dissatisfied clients that could result in unexpected financial loss. In business disputes do arise, no matter how reputable a company is or how hard it strives to meet its clients’ or customers’ needs, and as these have the potential to run into many thousands of pounds professional indemnity insurance can provide valuable peace of mind.

What does professional indemnity insurance cover?
Your business could be exposed to a variety of risks including:

Loss of documents or data
Dishonesty, such as liability arising from theft of a client’s money or other assets by your staff members
Intellectual property disputes, such as unintentionally infringing trademarks or copyrights
Depending on the individual policy terms, professional indemnity insurance may cover legal expenses incurred as a result of defending the claim, the payment of damages or the cost of putting right mistakes.

How much cover will I need?

This very much depends on the individual business and its exposure to the insured risks. Some clients may set a minimum limit for the indemnity they require and this may depend on the nature of the services you’ve been contracted to provide them with.

Other specialist business insurance policies
Depending on the type of business you operate, you may wish to take out extra protection by way of specialist business insurance policies. Your considerations may include:

Goods in transit insurance - to cover goods against damage whilst being transported between destinations
Business travel insurance – essential if you or your employees travel for business reasons
Tool insurance – to protect your tools, usually in transit
A fidelity guarantee – to insure against loss or money, stock or other assets resulting from staff dishonesty
Data processing insurance – covers electronic media and data processing equipment
Glass and shutters insurance – covers the replacement of glass or shutters following accidental or malicious damage
Engineering insurance – provides specialist cover for machinery or equipment
Commercial legal insurance – covers legal expenses that may result from non-compliance
Credit insurance – insures you against debtors who are unable to pay you due to bankruptcy
Loss of cash insurance – provides cover up to a set limit for the loss of money, either in transit or from your business premises
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