What insurance do you need when starting a business?

Esther Shaw / 03 February 2016

A guide to the different types of insurance a business could need.



When setting up a small business, organising insurance may not be top of your “to-do” list – and can feel like a hefty expense – but it’s important to ensure you have protection in place to cover against the risks you potentially face.

If not, you could find yourself in trouble should the unexpected happen.

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A good business insurance policy will pay out for things, such as compensation payments and legal costs.

Here we look at some of the different types of cover you might want to consider. While only one type is mandatory, the others offer a useful safety net.

Employers’ liability insurance

As a small business owner, the only type of insurance which is compulsory is employers’ liability insurance.

This is a legal requirement when you take on your first employee.

This will help you pay compensation if a worker gets ill or injured because of the work they do for you.

Your policy must cover you for at least £5 million, and must come from an authorised insurance firm.

Fail to put this cover in place, and you could be fined £2,500 for every day that you are not properly insured.

For example, this cover would kick in if a waitress in your restaurant made a claim after falling on an area of damaged flooring and broke an arm.

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Professional indemnity insurance

Professional indemnity insurance covers losses incurred by clients as a result of mistakes or bad advice, such as breaking copyright rules, or giving advice which results in your client losing money.

If you offer a professional service or provide advice, this type of cover is particularly important.

For example, all accountants should have professional indemnity insurance, so if they give bad advice that costs a client money, the client can regain some or all of the losses.

If your client does demand compensation from you, you could use your professional indemnity insurance to cover any legal costs, as well as compensation payments.

Read more about professional indemnity insurance.

Public liability insurance

If you run your business out of premises, you should have public liability insurance in place. This covers injury to a member of the public.

This cover would kick in if, for example, a customer made a compensation claim after slipping on a spillage on the floor of your shop.

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Product liability insurance

Product liability insurance covers the cost of compensating any member of the public who gets injured or damaged by a faulty product that your business designs, manufactures or supplies.

This could be the case if a child got injured by a toy that you sold with a design fault.

In this scenario, you could use your product liability insurance to pay any compensation claims made by the buyer.

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Buildings and contents cover

If your business is based in a premises (such as an office or shop), you should have cover for your equipment and stock.

If your small business is based in a co-working space or serviced office building, you need to know exactly what cover is provided by your landlord. It might be the case that the landlord has insurance for common areas of the building, but that you have to insure anything you take into the office, such as your computer.

If you operate out of premises which you own, you will need to think about buildings insurance as well as contents cover.

If you work from home, you also need to check you have the right cover in place. Working from home doesn’t necessarily mean you need to take out different cover, but you should read your home insurance policy Ts and Cs carefully to check whether business activities are covered. You might find you need some additional cover.

For more tips and useful information, browse our careers and business articles. 

The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.