Business insurance is a form of insurance that helps you to manage your business risks. When you are registering a company, getting a business insurance is an important consideration.
When you are registering a company or starting a business you may want to limit your risks, whther personal or professional. In this guide you will learn about business insurance and why you may want to consider different ways to protect yourself and your business.
MachFast is not an insurance company and we are not a regulated broker. We can’t give you advice which specific insurance is right for you, but we would like to give you an easy way to understand how insurance products work. Hopefully this will help you in understanding whether business and personal insurance have a place in your business.
1. How to think about business insurance?
Business insurance is a risk management tool. What does that mean? It means that if you are concerned about certain risks (for example third parties filing law suits against you), you can buy insurance policies that will help you and your business to reduce financial costs associated with such negative events.
When you register a company and start trading having a business insurance may make sense.
2. What is an insurance premium?
An insurance premium is the amount of money that your business will pay monthly, quarterly or yearly to the insurance company. In return for this ‘premium’ the insurance company will agree to cover certain costs associated with the particular risk event that you are insuring.
3. Who is a policyholder?
When you buy insurance for your business, your business is the policyholder. That means that it will be your business that will make claims if an event occurs that is covered by your business insurance policy.
4. What is an insurance policy?
An insurance policy is the contract that your business has with an insurance company. Your company pays money called a premium to an insurer. There are many varieties of business insurance. Always pay attention to the small print. Insurance companies are very specific about what they are prepared to pay for and when you can make a claim. Insurance policies have a lot of ‘small print’ that you have to watch out for. For example many insurance policies will have a ‘deductable’. A ‘deductable’ is the amount of money that your business will have to pay first to deal with a particular risk event, before the insurance company will consider giving your business money under an insurance claim.
5. What business insurance can I get?
You can get a variety of business insurance policies to cover almost every eventuality in your business. The more common business insurance products help you deal with the cost of lawsuits, property damage, health & safety, Directors & Officers, etc… Generally, most small business, particularly limited companies should consider public liability insurance.
The best approach is to think about your business risks specifically, then find the right product with an insurance company or a broker that covers those specific risks. The more specific you can be in defining what risks you want to cover, the better insurance policy you may be able to find. The devil is always in the detail when it comes to insurance policies.
Some example of the most popular insurances for businesses are property insurance, liability insurance, and business income insurance.
6. What is public liability liability insurance?
Public liability insurance is one of the most widely used business insurance products in the UK. Public Liability literally means any financial liability that your busienss may incur if your business injures a member of the public (business or individual).
For example, imagine a situation when your business’s employee or one of the directors injures a third-party in the course of doing business. This will likely result in a lawsuit against your business. A public liability insurance can help to protect your business against the financial costs associated with such an event.
What does third parties mean?
Third-parties include anybody who is not an employee, director or in any way related and/or connected to your business. Your customers, creditors, landlord, vendors, members of the public are all third parties.
What does a public liability insurance cover?
Typically, basic public liability insurance covers claims from physical injuries or property damage that your business, and/or your products and services may have caused.
A good public liability insurance cover may also protect you in the even that a third party claims libel, slander, copyright infingement or false advertising.
Most public liability insurance covers will exclude automobile related liabilities as this is a different risk type and requires a different insurance policy.
If your business ends up being responsible for damages, general liability insurance will pay for damages up to the policy limits. Additionally, it will cover legal related to defend your business in court. Almost all good policies have legal assistance services that help businesses navigate some of the difficult questions that arise in these unfortunate circumstances.
Below are some examples when a Public Liability Insurance may be helpful for your business and cover associated costs (legal or otherwise):
- Property Damage: Let’s say that your restaurant’s kitchen had a fire cause by an employee and damaged the property next door.
- Bodily Injury: You installed a new fire alarm system and the sprinkelrs went off, the floors got wet, your customer started slipping on the floor of your shop etc… You get the picture.
- Products Liability: You just launched a product that accidently injures one of your customers.
- Copyright: You really liked an advert from a competing business and produced a similar looking advertisement. Your competitor may come after you for copyright violation.
What is the difference between Public Liability and Professional Liability or professional indemnity covers?
Public liability insurance typically excludes professional liability cover and Directors & Officers (D&O) protections. Insurance companies consider these to be separate risks from public liability. In the case of Professional Liability this risk is related to the quality of your work and risks associated with your work (for example professional regualted advise about financial or insurance products). Directors & Officers insurance policies typically cover specific risks that your company’s directors and executives take when they run the company.
7. What does property insurance cover?
Property insurance typically covers business property loss or domage.
If you are running your business from a commercial property then a property insurance will compensate your business in the vent that something happens to the property do disasterous events or accidents. Depending on the insuranc policy it may cover such property as building, inventory, office furniture, business equipment, printers, scanners, computer, laptops etc…
Most insurances cover ‘extreme’ events such as a fire, hail storm, a tree falling on the building, vandalism etc… If you want extra coverage such as ‘theft’ then the policy would be more expensive. In particular insurance firms do not want to cover ’employee theft’ as that is very difficult for them to evalutate.
For example, if you are a restaurant, and there is an accidental fire in the kitchen, then most good insurance policies will cover such an event. In the UK, bursting pipes are often an issue due to Victorian era plumbing. If your burst pipes damaged your goods, then a good insurance policy may cover the replacement costs.
When thinking about business property insurance, think about all the property that you own and that may be damaged in the event of a disaster striking. A detailed list of all the property items and your business assets will help you determine how much ‘cover’ you need to get.
What does insurance cover mean?
‘Cover’ means the maximum amount of money that the insurance company will pay your business to compensate for damages caused by the disaster. If your business owns a lot of expensive assets (such as computers, TVs, furniture, equipment, artwork) and you did not get enough ‘cover’ then the insurance company will only be prepared to pay up to the ‘cover’ amount.
What are Replacement Costs and Average Cash Values?
Another important consideration is whether you would like your insurance company to pay your business on the basis of Replacement Costs or Average Cash Value. In the ‘Replacement Cost’ scenario, the insurance company will pay out money based on the cost to replace the lost or damaged property. In the ‘Actual Cash Value’ option, the insurance company will pay based on the present value of the lost item, deducting any depreciation. For example if you had a car that you bought 5 years ago, and it got damaged in the building’s fire, then the insurance company will compensate the cost of the 5-year old car, rather than a new replacement.
Normally, natural flooding and other natural disaster events are excluded from property insurance and you will need to get a separate policy for such a disaster.
8. Employer’s Liability Insurance
When you first register a company you may not have employees. When you hire your first employee you must have an Employer’s Liability Insurance in place.
Employer’s Liability Insurances covers your business in the event that one of your staff members claims they’ve suffered an illness or injury as a result of working for your business. It covers any legal and compensation costs involved in defending the case.
Your Employer’s Liability policy must cover you for at least £5 million and come from an authorised insurer. The UK Government has an excellent guide on how to prepare for employing staff.