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Insurance

There are numerous types of business insurance for small businesses to consider, some of which are compulsory and others that are advisable. Find out what business insurance you are legally required to have as an owner and employer and explore the various types of insurance such as employers' liability insurance and professional indemnity insurance.

Why insure your business

Insurance is a must for all businesses, but it's not a 'one-size-fits-all' buying decision. Make sure you've got all angles covered. Finding the right business insurance can be a difficult and complicated process. There is a certain amount of jargon associated with the area which can put off many small firms. Companies want to buy a policy which will protect them when times are bad, or, if a disaster happens. However, thinking about worst-case scenarios is not something which positive, forward thinking entrepreneurs really want to do - you are probably thinking about how your business is going to grow and improve not how it could all go wrong. Disasters such as floods, fires and break-ins might all seem to be both unfortunate and unlikely and something that won’t happen to you. As an entrepreneur you might see your insurance as one of those unavoidable costs - you don’t much like it but you’ll go along with it. However, for many firms it ends up being their life support. You never know if disaster is lurking around the corner, but it is too late to get cover after the incident has happened. Nevertheless, insurance is not an area where ‘one size fits all’ - don’t buy a policy unless you really need to. But also don’t fall into the trap of scrimping on costs, as you might find out that you are not covered when the worst happens. As we shall discover throughout this section, it is important to understand your own risks, know what the insurance market has to offer and to thoroughly read and understand any policy before committing to it. Insurance can be a complex topic for some but it isn’t rocket science and you can get it right.

Liability insurance

Nearly all businesses need some level of liability insurance, and employer’s liability insurance is the most common one. If you are about to take on staff then you should ensure you have this first. Also, if you are thinking of setting up a limited company then it is a legal requirement as well, as technically the company is the employer. If any member of your staff is taken ill, suffers injury or death and this is deemed to be as a result of their work, then you are potentially liable. Therefore the law states that you must have cover in order to cope with this eventuality. By law employers must have at least £5m of liability, although many policies offer £10m. There are just under 400 deaths and nearly 30,000 major injuries at work each year in the UK, therefore you are well advised not to make any cuts here.

Motor insurance

As any driver knows, motor insurance is a legal requirement, but many come unstuck when using vehicles for work related activities. You might think that your current insurance covers you, but unless your policy includes work use then you are mistaken. The good news is, however, that this is not normally expensive and some insurers offer it for free. If you are employing someone who is using their own vehicle for work purposes other than travelling to work, then you have a responsibility to ensure they are fully covered. A work purpose could be as innocent as dropping you off at a meeting - it doesn’t matter - they still require business insurance. It is also highly advisable to check with the DVLA that your staff are legally able to drive and take copies of their insurance and MOT documents, as well as their driving licences.

Public liability

Public liability insurance, though not compulsory, is something only the most cavalier business would cut back on. It covers you for damage against property or persons that you might encounter during your work. Many clients won’t deal with you or can’t legally deal with you unless you have it, so you might consider it to be obligatory.

Income Protection Insurance

Income protection is a type of insurance that pays out a monthly benefit to replace lost earnings if you have to take time out of work as a result of illness or injury. It is possible to take out a plan that could pay out for up to 12 or 24 months, or even up until the age you expect to retire if you are too ill to return to work.

What does income protection cover?

For the vast majority of occupations it is possible to gain cover with the ‘own occupation’ definition of incapacity, which means that the plan would pay out for practically any medical condition that prevents you from work in your actual job function. This means that all illnesses and injuries would be covered if it prevented you from working, whether that illness or injury was obtained in the workplace or not. The only real exclusion across insurers is self-harm.

Do you need professional indemnity insurance?

Professional indemnity insurance should be a top priority for providers of professional services wishing to protect themselves from crippling compensation claims. Architects, solicitors, accountants and thousands of other professionals provide services and advice upon which their clients depend. As an experienced professional, your skills can be relied upon. But sometimes, unavoidably, things go wrong. If you make a mistake during the course of your work, there is a significant possibility that it could cause some financial loss to your client. You’re hired by a client on the basis that your advice is sound and, as a result, you are likely to be held liable for any costs incurred as a result of errors or omissions in the provision of your services. How can it help? Professional Indemnity (PI) insurance can help protect you against claims made by clients who have suffered a loss of this sort. This so-called ‘business injury’ can frequently result in large compensation claims, and the costs of fighting such a claim are also hefty. A good Professional Indemnity policy will protect you against the cost of the compensation claim itself, as well as helping to cover the cost of defending the claim. This might include legal fees, for which you would be held liable in the event that the client’s complaint is upheld in court. Is it a legal requirement? In many cases you will be required to take out Professional Indemnity cover. Some professions are legally obliged to have it. Accountants and financial advisers cannot legitimately operate unless they are sufficiently covered. Other professionals are required to have such insurance as a condition of trade association membership. Just as important, though, is the way in which your business is perceived by potential clients. Professional Indemnity insurance can mean the difference between securing a contract and losing out to a competitor. Most businesses will expect you, as a provider of professional services, to be sufficiently insured. If you fail to take out Professional Indemnity insurance, you could miss out on vital jobs. Aside from all of these concerns, Professional Indemnity insurance is simply good business sense for all those involved in offering professional services and advice. It is impossible to safeguard your business against every potential mistake but you can safeguard it against the cost of those mistakes. Avoiding a claim Even with insurance, it is of course preferable to avoid claims being made against you. Amongst the most important ways of preventing claims is to ensure that your contracts are watertight. Your arrangements with clients should be clearly articulated, without the possibility of multiple interpretations. Claims can be avoided when both parties have a clear idea of what is expected of them. It is also vital that you keep detailed records of your contracts and the work you perform for your clients. These records will be invaluable in the event that a claim is made, and should help with the prompt settlement of a dispute.

Commercial property insurance

This type of insurance is for those who own or manage properties used for business purposes. You need to make sure you’re covered for a range of different situations that may arise, which would cause disruption to your tenants' business operations and thus put your rent in jeopardy. You'll want a policy that covers you for circumstances that could stop your tenants from trading altogether, such as a fire, flooding or storm damage. Your premiums will be guided primarily by the value of your property, its age and location, or in other words how at risk it is of crime or flood damage. Make sure you get a policy that's right for you and contains all the features you are looking for. You might need cover for landlords' contents or equipment breakdown if, for example, your property is used as a retail outlet but you own the tills or the fixtures and fittings. You must also ensure you have adequate cover for public and property owners' liability, which covers you for injuries or damage sustained by third parties when visiting the property you own.

Residential property insurance

There is a lot of money to be made in property, and people are increasingly investing in portfolios of residences to rent out to tenants. If you let your property to tenants, a standard household insurance policy is insufficient and you will soon come unstuck if you need to make a claim. Residential property insurance is designed specifically for residential landlords or buy-to-let owners, such as property management and development organisations. The most important thing to look for in a policy is how much the building is covered for. Ideally, you want a policy that would cover the cost of rebuilding from scratch in the event of a fire or natural disaster as well as covering loss of rent to tide you over. Other key features you should look for as a residential landlord are: alternative accommodation costs; landlords' contents, if you have furniture in the property; contributions towards alternative accommodation for your tenants and public and property owners' liability, in case anyone injures themselves in the property. If you are a property developer and hire staff, it’s also important to ensure you have employers’ liability insurance to cover you for injuries or illnesses

Shop insurance

Disasters such as the Camden Market fire, the summer floods of 2007 and the Buncefield oil depot explosion, meant many retailers learned the lesson of having their stock insured the hard way. For many, stock levels were near critical, some were wiped out altogether. As a shop owner, it's vital that your premises are covered for such eventualities as well as more commonplace situations. Different insurers will offer various features as standard, so think about what's most important to your business. With crime still a major concern for retailers, it's important to make sure you're covered for loss or damage of stock. Payment for loss of earnings if trading is interrupted could be the difference between surviving and going under in the event of a disaster. If your shop sells alcohol, you may also want to ensure your policy will cover you if you lose your licence for any length of time. It's also important to make sure you have adequate buildings insurance. If you rent the premises this is your landlord’s responsibility, but if you own the building it comes down to you. Many shop insurance policies allow you to extend the amount for which your premises are covered in the event of damage. As a retailer, product and public liability insurance are also a must.

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