The essential information about business insurance
- Your Responsibilities
With small business insurance you have a number of responsibilities…
A list of business insurance terms
Frequently Asked Questions (FAQs) about business insurance
- Rules & Regulations
The rules and regulations governing business insurance
When you are considering what types of insurance cover your business will need, bear in mind that this will depend to a certain extent on the specific sector or industry in which the business operates. For this reason it’s always best to consult a broker with specialist knowledge before making your decision.
The types of insurance covered in this topic which you will need to give some thought to are:
- legal liability insurance – this protects the business in the event that it causes damage to a third party or their property;
- general insurance – these policies cover the business against damage caused to its property or operations; and
- protection insurance – these policies (such as permanent health insurance) protect the business and its personnel against the adverse effects of serious illness, injury or death.
In some cases, insurance is compulsory by law, for example, employers’ liability insurance. See Your Responsibilities for details of insurance cover that you must have, and cover that it is advisable to have.
For information about legislation related to insurance policies and cover, see Rules and Regulations.
The guidance below explains the different types of insurance cover and will help you with the application procedure:
- Legal liability insurance
- General insurance cover
- Protection insurance
- Completing the proposal form
- Insurance premium tax
In the course of running your business you will run the risk of legal liability towards the staff you employ, your customers and to the general public. Legal liability insurance covers you for damages you may be required to pay as a result of court action, together with the costs and expenses of the person claiming against you if their claim is successful.
There are several different types of legal liability insurance available:
As an employer you are required by law to take out appropriate insurance against your liability for injury, disease or death caused to your employees arising from their employment. Usually this also includes apprentices and other trainees as well as staff hired from another employer. There are exceptions if all of your employees are close relatives, and your broker or insurer will be able to advise you if this applies to you.
The law requires you to take out cover for a minimum of £5million, although policies tend to offer cover of at least £10million. It is a criminal offence to fail to display a certificate of employers’ liability insurance at each place of work.
This covers your liability to pay damages to members of the public if the business operations cause their death or bodily injury, or damage to their property. Typically it also covers any legal fees, costs and expenses involved, for example, if you need legal representation at a court hearing due to an accident.
It’s up to you to decide how much cover you need, bearing in mind the maximum potential claim that could be made against you (damages awarded by the court for personal injury can exceed £1million), and the possibility of having multiple claims made against you.
If your business makes, repairs or sells goods, you could be liable for damage or injury caused by defects in their design or manufacture, even if you have not been negligent. Product liability insurance covers you in these types of circumstances.
Motor vehicle liability
You are required by law to insure against your liability for injury to third parties and damage to their property caused by using vehicles on the road. This is known as third party insurance.
Most business policies offer either comprehensive or third party cover, together with cover against fire and theft. Comprehensive cover includes damage to your vehicle. The third party element of a commercial vehicle policy meets the legal requirement to cover your liability to third parties.
Businesses in certain professions, such as legal, accountancy and financial services, are legally required to take out professional indemnity insurance. This protects the business against liability for losses suffered by clients as a result of negligence. If you are in any doubt as to whether this applies to your business, you should contact your trade association or professional body for further details.
Directors and officers liability
Directors and officers of a limited company can be held personally liable for their actions in certain circumstances.
You can obtain insurance to provide cover against this liability.
There are many different types of insurance cover aimed at protecting business assets and activities:
You can insure your business premises and contents against specific risks listed in the policy such as fire, lightning and explosion. Alternatively, you can take out cover on a wider, ‘all risks’ basis which also covers any accidental damage or loss which isn’t specifically excluded. Bear in mind that all risks insurance won’t cover everything, for example, damage caused by wear and tear, electrical or mechanical breakdown and gradual deterioration. You should discuss your specific requirements with your broker.
You will need to insure the business premises for the full rebuilding cost (including professional fees and the cost of site clearance) and not just for the market value. If you lease the business premises from a third party, confirm with the property owner that they have adequate cover in place.
You’ll need to insure any stock for its cost price without any addition for profit. It’s possible to obtain cover which allows for seasonal stock fluctuations, if this is a feature of your business. You can insure your plant and business equipment either on a ‘replacement as new’ or ‘indemnity’ basis. The indemnity basis takes wear and tear into account when claims are settled.
It is usual to take out insurance for contents against theft where there has been forcible and violent entry to or exit from the premises. If the theft or attempted theft results in damage to the business premises, this will also normally be covered. Bear in mind that theft by employees is not generally covered, and you will need a fidelity guarantee policy if you want cover against employee dishonesty.
Money is insured on an ‘all risks’ basis and covers cash, cheques, postage stamps and certain other negotiable instruments. The policy will apply different limits on cover, depending on whether the money is on business premises, held in a safe, at the homes of directors or employees or in transit, and whether the loss occurs during or outside business hours. The terms of the policy may require specific procedures to be put in place regarding, for example, safe keys and the method of transit used for business money. Personal assault cover may be included, which will compensate you or your staff if you or they are injured during a theft or attempted theft.
Goods in transit
This type of insurance covers goods against loss or damage while in your vehicle or when sent by carrier. There may be a limit on cover for each vehicle or for any one consignment of goods.
This cover compensates for any shortfall in gross business profits. It pays for any increased working costs and extra professional fees incurred as a result of disruption to the business, for example, caused by damage to the business premises. You’ll need to estimate the maximum time you would need to get the business up and running again following serious damage, and give the insurer an estimate of your anticipated gross profits.
Trade credit insurance
This protects businesses against the risk of bad debt due to the insolvency or default of their customers. It can be an important tool in credit management. It can also replace working capital when bad debts and late payment have an adverse impact on the cash flow of the business.
You are required by law to take out insurance for your business vehicles. You will need to give your insurers full details of the types of vehicle, their usage, the goods carried, details of drivers and, where applicable, the maximum number of fare-paying passengers. A fleet policy may be appropriate if your business has more than five vehicles.
This type of policy protects your business against the financial impact of taking or defending a legal action. It covers legal costs such as solicitors’ fees and expenses, the cost of barristers and expert witnesses, court costs and opponent’s costs if awarded against you in civil cases. Policies usually cover matters such as contractual and employment claims, debt recovery and landlord disputes (except those relating to rent or service charge). The cover may also include the cost of engaging professionals such as accountants and lawyers to advise you, for example if HM Revenue & Customs carries out a tax or VAT enquiry into the business.
Cyber liability or e-risks
To protect your business against liability arising out of online activities (such as network risks, risks arising from your website or web application, and use of email and the internet), you should consider obtaining cyber liability or e-risks cover. Such a policy typically covers risks such as content liability (for example, defamation and libel, data protection breaches, intellectual property violations such as copyright breaches, and downloading of malware such as viruses), security breaches (for example, business interruption, data theft, denial of service attacks), and fraud.
If your business operates in the engineering industry, this type of cover will protect you against electrical or mechanical breakdown for most kinds of machinery, including computers. It’s a legal requirement that certain items of plant (for example, boilers and lifts) must be inspected regularly by a qualified person, and insurers can arrange to provide this service for you.
It’s not possible to provide an exhaustive list of the types of general insurance policies available, but other examples include:
export credit insurance (cover against non-payment);
fidelity guarantee (cover against loss of money or stock arising from the dishonesty of your employees);
book debts (cover against loss of money arising from accidental damage or theft of accounting records); and
- travel insurance (cover during business trips abroad which includes medical and legal expenses, personal accident and loss of baggage).
Your broker can give you advice on what is appropriate for your particular market and business.
You may want to protect your business against the consequences of the serious injury, illness or death of business personnel. For example, the loss of a key person, either on a permanent or temporary basis, could have a significant impact on the business.
Policies that provide benefit for serious illness, disability or death of employees can be arranged on either an individual or group basis. Your accountant or broker will be able to advise you on the tax position if you arrange insurance for your employees against death, disability or sickness.
Protection insurance products available include:
Personal accident and sickness insurance
This type of policy pays a regular cash benefit to a person who is unable to work as a result of an accident or illness. It’s especially valuable for self-employed people who would not have an income if they became disabled or sick. Personal accident policies are arranged for one year and are renewable at the option of the insurer. If the person insured is sick or injured, regular payments are usually made on a weekly basis up to a maximum number of weeks (usually 52 or 104). There is normally a deferred period (such as seven days) before payments start. A lump sum may also be payable on death or specified disabilities such as the loss of a limb or eye, depending on the terms of the policy.
Income protection insurance
This kind of cover is arranged on a long-term basis, usually until the retirement age of the person insured. The policy provides a regular income to compensate for the loss of earnings through incapacity and being unable to work. The benefits are payable while the insured person is unable to work, but stop at the end of the policy term. The payments are limited to a proportion of that person’s normal earnings. There’s usually a deferred period before benefits are paid, to take into account any statutory sick pay and other state sickness benefits that an employee might receive. Employers can arrange group income protection schemes to cover their employees in the event of long-term sickness. Income protection insurance is also available to protect the business against the financial impact of losing a key employee through illness or injury. This is known as ‘key man insurance’.
Private medical insurance
This covers treatment for curable, short-term illness or injury (commonly known as acute conditions), and gives the benefit of knowing that treatment is available promptly. It can be particularly useful for small employers, as it helps them to manage employee absence. Private medical insurance is arranged for one year at a time.
The advantage of this kind of policy is that it can provide financial security for employees’ dependants and protect the profitability of the business if a ‘key’ employee should die. Key employees can be insured for an amount which it is estimated the business would lose in the event of their death.
Group life assurance schemes provide lump sum death benefits for the dependants of employees who die in service. These schemes can also provide a spouse’s pension on the death in service of an employee. Life insurance can also be used to protect partnerships so that the future of the business is not put at risk from the withdrawal of the deceased partner’s capital.
Make sure that when you apply for insurance cover, you answer all the questions on the proposal form accurately and fully, giving all relevant details about the business. Failure to disclose everything that is relevant, whether specifically asked for or not, could entitle the insurer to treat the policy as invalid. It’s always best to provide as much information as possible.
Insurance premium tax (IPT) is a tax on insurance premiums paid by some insurance companies, insurance brokers and intermediaries selling taxable insurance. There are two different rates of IPT, standard (currently 6%) and higher (currently 20%). For guidance on which applies, refer to the HM Revenue & Customs website.
You must register and account for IPT if you are:
- an insurer providing taxable insurance; or
- an intermediary selling insurance subject to the higher rate of IPT, and charging a separate insurance-related fee over and above the insurance premium itself.
All types of insurance risks located in the UK are taxable unless they are specifically exempted. Exemptions from IPT include:
- long-term insurance, including life insurance and permanent health insurance, but excluding medical insurance;
- export finance;
- insurance on commercial goods in international transit;
- insurance for risks outside the UK;
- commercial aircraft insurance;
- commercial ships and lifeboats insurance; and
- insurance on international railway rolling stock.
This is a sum of money owed to a business in the ordinary course of its business. Book debts include sums owed to a business for goods or services supplied, or work carried out. Sums due under loans may also be treated as book debts.
The amount you will have to pay before your insurer pays the balance of the claim, for example, the first £50 of a claim.
A signed written promise, or order to transfer, a specified sum of money on demand or at a fixed future time to the person named on the instrument, or to the bearer (owner). The drawer issues the negotiable instrument to its financial institution (the drawee) requiring it to pay a certain sum to the bearer of the instrument on its maturity. Negotiable instruments may be endorsed by the holder (the endorser) to transfer the benefit of the instrument to a third party.
No claims bonus
A discount given by the insurer if you have not made any claim on your insurance policy within a specified period of time.
Permanent health insurance
This is an insurance that will provide ongoing benefit, usually based on a percentage of the employee’s salary, if the employee falls ill and is consequently unable to work. The benefit is usually provided until death, retirement or until the employee returns to work.
A. You can use the search facility on the British Insurance Brokers Association’s website.
A. A chartered surveyor will be able to help you calculate the reinstatement value of the premises, which will be higher than just the market value. To find a qualified chartered surveyor to do this for you, use the search engine on the Royal Institution of Chartered Surveyors website.
A. You must check the licences of all of your drivers, and let your insurers know about any motoring convictions. If you do not do this, you will not be insured. You will also need to let your insurers know of any motoring convictions that happen after the insurance is in place. Therefore, make sure that your employees give you this information on an ongoing basis.
A. You should compare quotes from different insurers and the levels of cover they offer before making your choice. As well as the cost of the insurance, you should take account of what the policy covers, what levels of service the insurer offers (for example, are there 24-hour emergency helplines?), whether there is any no claims bonus, and the level of any excess you will have to pay.
A. It is vital that you report any loss of, or damage to, your assets as soon as you are aware of it, because if you delay your claim may not be valid. If you believe that the loss or damage is due to a criminal act, you should also report it to the police immediately. Keep a written record of as many details as possible about what happened and when. You will also need to provide:
- estimates for repairs;
- proof of the cost of any emergency repairs that were needed (for example, to secure your premises);
- proof that you own the assets in question;
- the cost of the assets you are claiming for (including valuations and/or receipts); and
- a police crime reference number if relevant.
You will need to make any damaged assets available for inspection.
A. If a claim is particularly large or complex, the insurer will often employ a loss adjuster. The loss adjuster is an impartial expert whose role is to inspect the damage and check the claim for quantity, description and pricing. The loss adjuster can advise both the insurer and the policyholder. They can give advice to the policyholder on how to improve security and safety and any areas of cover which have been overlooked. They can also advise about repair techniques and specialist companies who can undertake such work.
A loss assessor is someone employed by the policyholder to negotiate and settle the claim on their behalf. The loss assessor will charge a fee, so, it’s usually only worth considering engaging one if your claim is likely to be substantial.
A. The insurer will make its calculation based on the information you provide, and the history of business types similar to your own. Premiums can also be affected by the amount of claims you have previously made, and by the levels of risk attached to the people you employ, or to the business and assets.
A. You should complain to the company first. If they are unable to resolve your complaint, then you should contact the Financial Ombudsman Service (FOS). This is an independent service set up to help settle individual disputes between consumers and financial companies. You can find out how to make a complaint on the FOS website.
The Road Traffic Act 1988
It is a criminal offence under the Act to use (or permit to be used) any motor vehicle on a road or public place without third party motor insurance to cover your liability for personal injury to an individual, or damage to property. Insurance cover must be maintained even during periods when the vehicle is not being used, unless it has a formal Statutory Off Road Notification (SORN) in force.
Employers’ Liability (Compulsory Insurance) Act 1969
Employers are legally required to insure against liability for injury or disease to their employees that arise out of the undertakings of their employment. The indemnity is required to be at least £5million. Where an employer has one or more subsidiaries they will be covered by a single policy.
The policy should be taken out with an authorised insurer who works under the terms of the Financial Services and Market Act 2000. When an insurer enters into a contract of insurance they are required to issue the employer with a certificate of insurance. The certificate should:
- be issued by the insurer no later than 30 days after the date on which the insurance commences or is renewed;
- state the policy number;
- state the name of the policy holder;
- give the date of commencement and expiry for the policy;
- detail the minimum amount of indemnity the policy provides; and
- be signed by the insurer and employer.
Employers are required to produce a certificate upon notice from an inspector. If they fail to do this, they face financial penalties. Also, a copy of this certificate must be readily accessible to employees, either in electronic format or by displaying it in the workplace.
Employers are no longer obliged to keep employers’ liability certificates for 40 years. However should an employee make a claim against you where the illness has occurred over a period of time and you don’t have any records, you may have to foot any legal fees including a compensation payout.
The Financial Services and Market Act prohibits conditions being placed in the contract of insurance that exclude the insurer’s liability in certain circumstances. Employers cannot agree, nor can insurers, to impose any conditions under which insurance would not be provided.
For further advice on this subject, why not use your Complimentary Call?
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To use this call please ring the legal advice line on 0844 257 2226 and quote IS4PROFIT.
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