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Some insurance is required by law - some by prudence.
With all the other expenses involved in setting up a business,
it's tempting to have the minimum insurance required by law
- insurance against risks to third parties.
However, it makes sense to get adequate insurance to avoid the
risk of losing it all.
Business insurance is usually divided into three fields:
• Liabilities
• Property and buildings
• Business assets and equipment (contents cover) .
Employers Liability.
Once one employee is taken on it is required by law that the
company takes out Employers Liability Insurance. The prescribed
legal minimum is currently [2001] £10m of cover against bodily
injury, illness or disease sustained in the course of employment.
More info is available in PDF format :
Employers’ Liability
(Compulsory Insurance) Act 1969
A guide for employers (PDF)
Public Liability.
Definition:- Legal liability to pay damages consequent upon
bodily injury, illness or disease contracted by any other person,
other than employees, or loss of or damage to their property
caused by the insured.
Limit of Indemnity is the maximum amount the insurance company
will pay in the event of a claim being made. The limits are
usually up to £5m but when working for another company, cover
of £10m or more can be demanded.
Product Liability
Product Liability is your legal liability to pay damages consequent
upon a defective product being used in the contract.
Products liability insurance is a little more specialist. Businesses
that supply products to other businesses or the public, from
software to machine tools, are at risk if a faulty product causes
damage or injury.
Manufacturers of a product are usually at risk if things go
wrong, but the liability can fall on a supplier if the maker
of the product goes bust.
Professional Indemnity
Unfortunately, we live in litigious times. Businesses can be
sued, rightly or wrongly, for vast damages over a range of complaints.
Professional indemnity provides protection against any action
by clients who believe they received bad or negligent services,
and incurred a loss as a result.
Most professional bodies have professional indemnity cover -
in some cases it is compulsory. Anyone who supplies advice or
services such as consultancy should consider professional indemnity.
See a more detailed explanation of professional indemnity insurance by Collegiate Underwriting.
Key Man Cover
Small firms depend heavily on a small number of key people.
This cover cannot replace someone, but it can provide short-term
financial help to reduce the impact.
Business Interruption
Even minor damage to your property could seriously disrupt
your business leading to loss of income and extra expenses.
Business interruption insurance will compensate for the short-fall
in gross profit together with paying any increased working costs
and extra accountants’ fees incurred.
Goods in Transit
Goods in transit insurance covers goods against loss or damage
while in your vehicle or when sent by carrier.
Property and Buildings
Buildings and contents can be insured against fire, lightning,
explosion of gas and boilers used for domestic purposes without
the addition of special perils such as explosion, riot, malicious
damage, storm, flood, impact by aircraft, road and rail vehicles,
escape of water from tanks or pipes and sprinkler leakage.
'All risks' insurance gives wider cover including any accidental
damage or loss not specifically excluded. However 'all risks'
will not cover wear and tear, electrical or mechanical breakdown
and gradual deterioration which will be specifically stated
in the policy document.
The business premises should be insured for their full rebuilding
cost (including professional fees and the cost of site clearance)
and not just for their market value. You may need expert advice
to calculate the rebuilding cost, which often differs significantly
from market value.
Business assets and equipment (contents cover)
Your stock should be insured for its cost price without profit.
Plant and business equipment can be insured on either a 'replacement
as new' or an 'indemnity' basis. If indemnity is chosen, wear
and tear will be taken into account when settling any claims.
Engineering insurance provides cover against electrical or
mechanical breakdown for most machinery, including computers.
By law, many items of plant such as boilers, lifts and lifting
machinery must be inspected regularly by a qualified person.
Insurers can arrange to provide this service.
Contents are usually covered against theft providing there
has been forcible and violent entry to or exit from the premises.
Damage to the building resulting from theft or attempted theft
will also normally be covered.
Theft by employees is usually not covered – cover against
employee dishonesty can be arranged by a sepatate policy.
Money insurance is on an 'all risks' basis and covers cash,
cheques, postage stamps and certain other negotiable documents.
Different limits will apply to money on the premises in and
out of business hours, in safes, at the homes of directors or
employees and in transit. There may be requirements in the policy
relating to safe keys and the method of transit.
Personal assault cover may be included, which will provide compensation
for you or your employees following injury during theft or attempted
theft of money.
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