Business insurance pays for losses that would otherwise come straight out of your company’s money, such as an injured employee’s claim, a fire at your premises or a client suing over a mistake. Some cover is required by law, and going without it can bring fines on top of the uninsured loss.
In the UK, an employer without proper employers’ liability insurance can be fined £2,500 for every day it is not covered, GOV.UK says. Many owners know they need insurance but are unsure which policies matter for their business. This guide explains the main types, which ones the law requires and how to choose cover.
The rules below come from the UK and the US. Insurance law differs between countries and between US states, so check the rules where your business operates.
Which business insurance is required by law?
It depends on where you trade and whether you employ people. In most places, the compulsory covers protect employees and the public, while cover for your own property and income is optional.
What the law requires in the UK
You must get employers’ liability insurance as soon as you become an employer, according to GOV.UK. It helps you pay compensation if an employee is injured or becomes ill because of the work they do for you. The policy must cover you for at least £5 million and come from an authorised insurer, which you can check on the Financial Conduct Authority register.
There are exceptions. You don’t need it if you only employ a family member, or someone based outside England, Scotland and Wales. You must also display the certificate where employees can see it, for example at your workplace or on your intranet, or you could be fined £1,000.
Two other rules catch many small firms. You must have motor insurance to drive a vehicle on UK roads, with third party cover as the legal minimum. Some professions also face rules from their regulator: the Solicitors Regulation Authority requires every firm it authorises to hold professional indemnity insurance with an approved insurer.
What the law requires in the US
The Small Business Administration says every business with employees must have workers’ compensation, unemployment and disability insurance. It adds that some states require more, so check your state’s rules before you hire.
What are the main types of business insurance?
| Type | What it covers | Who usually needs it |
|---|---|---|
| Employers’ liability (UK) or workers’ compensation (US) | Claims from employees injured or made ill by their work | Any business with staff |
| Public or general liability | Injury to members of the public or damage to their property | Shops, trades and businesses that meet customers |
| Professional liability or indemnity | Claims that your advice or service caused a client a loss | Consultants, accountants, designers and other advisers |
| Product liability | Harm caused by a faulty product you make or sell | Manufacturers and retailers |
| Commercial property | Buildings, equipment and stock damaged by fire, theft or weather | Businesses with premises or valuable stock |
| Business interruption | Lost income and running costs while an insured event stops you trading | Businesses that rely on one site or one supplier |
In the US, the SBA also describes a business owner’s policy, which bundles the usual covers into one package. Insurers in the UK sell similar packages, often for shops, offices or tradespeople.
Is public liability insurance a legal requirement?
No, not under UK law. It is still one of the most common covers, because clients, landlords and event organisers often ask for proof of it before they sign a contract with you.
Does a business run from home need its own insurance?
Often, yes. The SBA lists insurance for businesses run from home as a separate type that is added to a homeowner’s policy. Before you start trading from home, ask your home insurer whether your current policy covers business equipment, stock and visitors.
What to do now
The SBA’s first step is to think about what kinds of accidents, natural disasters or lawsuits could damage your business. From there, work through these steps.
- Check which covers the law requires where you operate, starting with employers’ liability or workers’ compensation if you have staff.
- Confirm that your insurer is authorised, using the Financial Conduct Authority register in the UK.
- Display your employers’ liability certificate where every employee can see it.
- Find a reputable, licensed agent or broker who understands commercial insurance.
- Compare quotes from several providers, because prices and benefits can vary a lot.
- Read the exclusions and the excess before you sign, so you know what the policy will not pay.
- Check your contracts and lease for insurance clauses, since many set a minimum level of cover.
- Review your cover when the business changes, such as when you hire, move premises or launch a product.
How much cover do you need?
At least the legal minimum, then enough to pay for the largest claim you could realistically face. For employers’ liability in the UK, the minimum is £5 million. For other covers, contracts with clients and landlords often set the figure, so start with those.
Will a claim be paid if your details are wrong?
It may not be. Insurers price cover on what you tell them about your business, so describe your activities, staff numbers and premises accurately. Tell your insurer or broker straight away when something changes.
When to get professional help
Speak to a regulated insurance broker or a licensed agent if you employ staff, sell physical products or give professional advice. Bring a list of what your business does, how many people you employ, your turnover and premises, and any contracts that set insurance requirements. If a contract or claim form has to be signed in front of a notary, our guide to what makes a notarized document valid explains what the notary checks.
This article is general information and is not financial or legal advice. Insurance rules differ between countries and US states, so check the rules where your business operates.
