Helping business owners with mental health issues, Start Small but Dream Big
Insurance – essential, not optional
I’ll be honest, this is a soapbox subject for me. Often, when I see people asking for advice when setting up a business, others will tell them not to worry about insurance. It’s not necessary, it’s expensive, you’ll be fine, what could go wrong, blah, blah, blah. Argh! Please, just stop!
Insurance costs money. Of course it does. And, depending on your industry, it can appear expensive. But, ask yourself this, if you don’t have insurance and something goes wrong, what will it cost you then? You will be personally responsible, and claims can easily end up in the thousands, even hundreds of thousands. Whether it’s loss of stock, loss of earnings, or personal injury, many people and small businesses would not be able to carry those costs. This could have a devastating effect on not only their lives, but also their family’s.
Sorry if I sound melodramatic, but it’s true.
Obviously, the exact insurance you need will vary dependent on your business. We’ll look at the types of insurance around, and who might need them.
Professional or product indemnity insurance
This, along with public liability insurance, is the most important. Professional or product indemnity insurance (also known as errors and omissions insurance) covers you if someone claims that your product or service is hazardous, or has not met requirements. Every type of business should carry this insurance, which will be tailored to fit the risks associated with your particular industry.
Public liability insurance
If you’re working from home and don’t plan to have clients visit you there, it’s easy to think that you don’t need public liability insurance. You do. It covers you if you visit clients too, if your equipment for example caused someone to trip, or you caused an injury. Public liability claims are often very expensive, and £1 million coverage should be considered an absolute minimum. In some industries it is a legal requirement, and if you’re exhibiting at shows, you may be asked to provide proof that you have it.
Even if you’re working from home, you need property insurance that encompasses the business aspect. If you’re working from home, you need to inform your household insurance company that you are running a business there, as it could affect any claims. If you rent a property, the cost of the building insurance is often included in the rent.
Property doesn’t just mean buildings, however. It also means anything that is necessary for carrying out your work. This includes records and documentation, stock, and fixtures and fittings. Where items are taken away from the insured property, you may need additional cover as some insurance policies only cover loss or damage incurred at the business location.
If you have a car, you already have insurance. No doubt, when you took it out, you were asked what you used your vehicle for. The usual answer is social and commuting. Social – also known as social, domestic and pleasure – refers to usage such as shopping, taking children to school, or visiting friends. Commuting means travel to a permanent place of work, or to somewhere such as a station, which forms part of the journey to work.
If you are using your car for business or for commercial reasons, then this needs to be declared. Business travelling is classed as travel relating to work other than to a fixed office, for example to visit clients or to attend a different work location. Commercial insurance covers people for who driving is a key part of their job, such as sales reps. These will incur a higher premium as the amount of driving they do makes them statistically more likely to be involved in an accident.
However, as someone who is self-employed, even if you use your car just occasionally in relation to your business, you may need commercial insurance. Delivering a wedding cake, or travelling to a client’s place of business could mean that your insurance company requires you to have commercial insurance. It is always best to speak to your insurer and be honest about how you will be using your vehicle. Failure to do so could mean that your policy won’t pay out in the event of an accident.
Employers’ liability insurance
If you’re just starting out, it’s unlikely that you will need this. Most people start out single-handed, or with the help of a close family member. If it’s just you, or your partner, parent, or child are your employee, then this isn’t necessary.
However, the moment that you employ someone, even on a short-term basis, then you are required to have this. Sometimes the definition of an employee isn’t clear. If you subcontract work out but the subcontractors are using your equipment and only providing labour, they are classed as employees. If you have volunteers, work placement or work experience people, then they are classed as employees. If your business is a limited company and has more than one registered director, then you need employers’ liability insurance, even though you are all owners.
Tips for purchasing insurance
- Just like domestic insurance, shop around. Use comparison sites and speak to individual insurers.
- Be honest about what you will be doing. Lying or omitting information could lead to claims being refused.
- Do your homework. Make sure you know what it would cost to replace things like equipment and stock, and have a list of the items you want to include on your insurance.
- Don’t skimp. Take the best insurance that you can afford (while ensuring that it’s a fair price). As well as ensuring that you have the best protection, it should also be enough to cover you as your business grows through the year.
So, once more, please, please, please don’t go without insurance. Not having it is false economy and it simply isn’t worth the risk.