At TransferGo, we are big fans and supporters of small and medium sized businesses (SMEs). In addition to offering small business owners easy low fee payment options, the TransferGo blog has published profiles of small businesses as well as articles containing advice and help for new entrepreneurs.
All small businesses require some capital in order to grow. Additionally many SMEs carry inventory, have employees, or perform a service which can create liability issues and put the owner at significant risk. One of the smartest investments a small business owner can make is the purchase of business insurance. Business insurance not only protects the owners and company’s assets but in some cases is required by law.
Business insurance is a very broad term. Few policies cover every aspect of a business without some customisation. It is important to select cover that protects the specific areas that are relevant to your business.
The first step in shopping for business insurance is deciding what types of protection your company needs.
The cost of business insurance depends on a number of factors:
- The type of company (you can find information about the various types of companies in the TransferGo Blog business section)
- The number of employees
- The nature of the work the business does
Types of Business Insurance
The second step in purchasing business insurance is to familiarise yourself with the main types of business insurance and the cover each type provides.
- Employee Liability Insurance
If your business has employees it is a legal requirement in England, Scotland and Wales that the business has employee liability insurance.
These policies cover legal fees and compensation payments your company may be required to pay in the event of the injury or death of an employee while at work.
Not having employee liability insurance can prove extremely costly if an employee is injured or killed at work. Not having cover can also result in fines. Companies are required to have a minimum of £5 million in cover and can be fined a maximum of £2,500 a day by the Health and Safety Executive for failing to have suitable insurance.
- Public Liability Insurance
Public liability insurance is necessary if you have members of the public in some part of your business (usually a shop, office or showroom) and covers damages and compensation to customers for injury or death and also covers damage to public property.
Public liability insurance also offers extra coverage for any employees that are working offsite, effectively increasing the benefits of your employees liability cover.
- Product Liability Insurance
If your company manufactures a product, you should consider product liability insurance to offer protection in the event of death or injury caused by your product. Not all products require liability insurance. Make a very critical assessment of your product and ascertain if there is any way your product can cause physical harm to your customers.
When searching for product liability make sure that you research how claims from outside the UK and the EU are handled, especially if you export, or plan to export, a significant amount of your products overseas.
Product liability insurance does not cover such items as the cost of refunds or claims of faulty/poor quality products.
- Professional Indemnity Insurance
Business owners and employees are only human and mistakes will occur. Professional indemnity insurance covers the business in the event the business is sued for damages which result from such an error. This insurance typically covers a very broad range of areas and types of errors.
Many professions such as insurance brokers, surveyors, financial advisors, architects, accountants, and solicitors are legally required to purchase professional indemnity insurance.
- Business Interruption Insurance
An interruption of a business can prove costly and even fatal to many small businesses. These policies cover financial losses incurred by the business due to unforeseen problems, usually for a fixed period of time. Examples of the events that are covered are the death of key employees, catastrophic IT failures, theft or vandalism of crucial business equipment or inventory, or government actions such as road works or infrastructure failures. Routine occurrences such as employee illness or missing a contract deadline are not covered.
- Commercial Property Insurance
These policies cover the business’ physical property in the event of accident, natural disaster, or theft at the company’s main place of business. In most cases commercial property insurance does not cover cars or other vehicles.
If you operate your business from your home it is unlikely that your homeowner’s policy provides protection for these items unless it is specifically noted in the policy that you are conducting business in your home.
- Goods in Transit Insurance
If you ship a large number of items or transport high value items, goods in transit insurance may be a wise investment. Goods in transit insurance is specially designed to provide cover for loss, damage, or theft for items while being shipped from one place to another by a third party.
- Legal Expenses Insurance
There are a number of reasons a company may incur legal expenses including current or former employee lawsuits, tax or health and safety disputes, or actions taken by customers.
Legal expenses insurance is not a must but should be considered if you are concerned about the cost of such legal fees.
Most of the types of insurance we mentioned can be purchased separately but in most cases it is more economical and easier to simply find a package that you can customise to fit your specific needs. Most insurance companies have a variety of packages, which are designed to fit the needs of specific types of businesses.
Home business insurance – The package is designed for those working out of their home and typically includes business property insurance and goods in transit coverage.
Self-employed business insurance – These packages are designed for those whose main source of income is their business. The cover can range from goods in transit and product liability insurance to public liability insurance depending on the type of work you do.
Shop insurance – these packages are typically designed for businesses which are open to the public. Typically they will include public liability cover and can include goods in transit cover and product liability insurance.
Tradesmen insurance – These packages are designed primarily for mobile workers and will include legal expenses cover and product liability insurance. Due to the mobile nature of tradesmen’s work, most offer commercial property cover.
Office insurance – These packages are geared toward businesses which rent office space and simply cover business property and equipment on-site.
The cost of business insurance can vary widely depending on the scope of your business, potential risks, employees, and how you interact with your customers.
Take a critical look at your day-to-day business activities to help you determine how much cover you require.
When you are getting quotes, look at such things as maximum pay-outs, limitations, exceptions, and exclusions. It’s very important to look at more than just the costs of cover: inadequate cover can prove to be very expensive, while paying for unnecessary cover is a drain on your business’ bottom line.
Above all, pay particular attention to the ‘small print.’