Different types of business insurance
Business insurance can protect you from losses that arise when running a business, for example, where a customer or employee claims against you, or your equipment is damaged.
The terms ‘commercial insurance’ and ‘business insurance’ are often used to describe employers’ liability and public liability insurance, and these are, in essence, the two main types of business insurance. But there are other types of insurance available, each covering different aspects of business.
And as every policy is different, it’s important to be aware of every type of business insurance to know which ones fit with your service and/or product.
Public liability insurance
Public liability is a form of insurance for businesses of all sizes, across a variety of industries. It protects you if a client or member of the public claims that they have been injured, or that their property is damaged, as a result of errors in your business. For those of you who have been asking, this is the main form of insurance for events such as Christmas fairs.
This type of insurance is designed to protect business owners from claims that lead to legal action. If a claim becomes a legal matter, a policy will cover the cost of these expenses, including any compensation you are required to pay.
Public liability claims can arise from many circumstances, but negligence is the main driver. A customer may stumble on an uneven surface in your premises, or a member of the public may injure themselves by using your product. An example might be a customer slipping and injuring badly because an employee at your company has not given a warning sign that the floor is slippery. This insurance will also cover claims of property damage. For example, if you accidentally turn tea on a client’s laptop during a meeting, and the boiling water damages it, your policy will cover the associated compensation costs.
It is up to you only to decide whether you need public liability insurance, as it is not a requirement by law. However, it can be useful to know that it is usually used by businesses that interact with the public on a day-to-day basis. In these cases, such insurance is important. And because most businesses come into contact with the public at some point, it’s a good idea for many businesses.
Employers liability insurance
Employers’ liability insurance can cover the amount of compensation and legal costs if an employee claims compensation for work-related illness or injury.
For example, an administrator is badly injured when they trip over a cable at the office and make a compensation claim against the employer or former employer. The court can order the employer to pay compensation for injury, costs and other damages. This compensation amount and legal fees can then be paid by employers’ liability insurance.
Employers liability insurance is a legal requirement. Most employers are required to have at least £5 million of employer liability insurance, or they could face a fine of up to £2,500 for every day they do not have this insurance. Some organizations are exempt from this legislation, including businesses that employ only close family members, and businesses without employers. But, even if your business is exempt, employers’ liability insurance is still a good idea, as compensation claims can be extremely high.
Product liability insurance
This is a type of business insurance that can cover the cost of compensation claims if someone is injured or their property is damaged by a product you have sold. An example of this would be if a young child swallowed a small piece off a toy that is your product. Product liability insurance can cover the legal fees and compensation costs if you are sued for injury or damage.
You are likely to be liable for these compensation costs if you manufacture the products you sell, but you can be liable if the products have been repaired or replaced under your business name too. You may also be liable if the original manufacturer cannot be traced, has gone out of business, or lives outside the EU.
In addition, it is worth noting that product liability insurance may not protect you from defective products resulting from poor workmanship, and financial losses to business caused by your defective product.
Professional indemnity insurance
This type of insurance is intended to protect professionals and their businesses if claims made by a client (or third party) suggest that they have suffered loss as a result of under-performance, breach of contract and/or professional negligence in the service they provide. In short, professional indemnity insurance provides the safety net when all else fails.
If you are questioning whether you need such insurance, it may be advisable to ask the following question:
Do I offer my knowledge, skills or advice as part of my profession, either as a self-employed person or as a company?
If this sounds like something you are offering, you should consider taking advantage of professional indemnity insurance. Some professions are required to consider professional indemnity insurance from their professional bodies or regulators, including solicitors, accountants, financial advisers and so on.
Business interruption insurance
Business interruption insurance aims to put your business back in the same trading position as it was before an event happened. Using a current example, this insurance covers losses due to the COVID-19 pandemic. Other common examples of business interruption are incidents of fire or flood. In the event of a flood, it can take months for the building to dry through, and the losses can be exceptional.
Business interruption insurance always includes what is known as a significant damage condition, which simply means that this insurance covers financial losses that are a direct result of business interruption, such as loss of revenue, loss rental income and additional staff costs.
Business property insurance
Protecting your location and equipment is important for any small business. That’s where business property insurance comes in. This type of business insurance, also known as commercial property insurance, helps protect your business premises, whether you own or rent it, from things like fire, explosions, burst pipes, storms, theft and vandalism.
If these have been stolen, damaged or destroyed, business property insurance can help cover the costs of repairing or replacing your personal property, equipment you use for business, stored stock in your office or warehouse, furniture and computers that you use to run your business.
More often than not, you have to be prepared for the worst while running a business, and you must ask the question:
Would my business survive if a key member of staff died suddenly?
This insurance prepares you for just that. If a key member of staff suffers a critical illness for example, then insurance of this kind must be considered to prevent a critical incident from having a negative impact on the rest of the staff and the success of the company. An obvious example of this would be the death of a CEO. If a CEO became ill or died, then this insurance would save your business against the financial repercussions. The money can be used to cover the cost of any loss of profits, new staff, or loan repayments.
In summary, this insurance provides cover in the event of a death, but may also cover a critical illness or disability that prevents your employees from working. Of course, ‘key person’ is a relatively vague term, but it can be anyone critical to the financial success of your business.
A lot to take in, but please ensure you seek to obtain the right insurance for your business. There are companies specializing in business insurance, and there are plenty of independent comparison websites that you can compare policies. If you’re attending a Christmas Fair or Market, you will need Public Liability Insurance, and this can be obtained on its own or as part of a wider policy, depending on the nature of your business.