When launching a business, you need to think about protecting what you’re building from the start. Small business insurance might not be at the top of your priority list, but it’s one of the smartest steps you can take early on.
In this guide, the UK’s leading company formation agent, Rapid Formations, explains the small business insurance you should consider, including those legally required and those offering valuable peace of mind.
Compulsory insurance for small businesses
Some insurance is a legal requirement in the UK, depending on how your business operates.
Employers’ liability insurance
If you employ staff, even on a temporary or part-time basis (including freelancers and contractors), you’re legally required to have employers’ liability insurance. It covers the cost if a staff member is injured or becomes ill at or because of their work.
Suppose you run an independent bakery. If one of your assistants slips and sprains their wrist during their shift, employers’ liability insurance covers the company’s associated legal costs and compensation expenses.
By law, you must have at least £5 million in cover, and the policy must be from an authorised insurer. Failing to have it can result in fines of up to £2,500 per day.
Commercial car/van insurance
Standard car insurance isn’t enough if you use any vehicles (whether you lease or own them outright). You’ll need commercial motor insurance to cover any accidents or damages you experience while providing your services.
For example, a dog grooming or trade business that visits clients at home needs business-specific vehicle cover, not just personal car insurance. Policies vary depending on how far you travel and the services you provide, so take the time to compare deals and choose one that matches how you use your business vehicle.
Recommended insurance for small businesses
Legal requirements aside, there are several insurance options that can protect your business from costly disruptions and liabilities.
Public liability insurance
This insurance covers claims made by third parties who are injured or have their property damaged due to your business activities, whether that’s on your premises or theirs. For instance, if a customer trips over a loose cable in your shop and suffers an injury, public liability insurance assists with compensation and legal expenses.
Any business dealing with the public should strongly consider public liability insurance, from shop owners and tradespeople to event organisers and therapists.
Professional indemnity insurance
This small business insurance is essential if you offer expert advice or professional services. It protects you if a client claims your work led to their financial loss.
In fields such as legal advice, accounting or design, clients often expect (or even require) this cover before working with you.
Product liability insurance
If your business makes or sells products, there’s always a chance something could go wrong, from manufacturing defects to labelling errors. Product liability insurance protects your business if someone is injured or their property is damaged because of a product you’ve sold.
Even if you didn’t manufacture the item, your company may still be liable if its name is on the label.
Business contents and building insurance
Everything from your office chairs and stock to laptops and tools can be necessary for daily operations. Contents insurance helps replace or repair these essentials if damaged or stolen.
If you run your business from a physical location that you own, add building cover to your policy, too.
Working from home? Check your existing home insurance policy to ensure it covers business items. If it doesn’t, you should take out a new commercial policy.
Cyber insurance
No matter your business size or industry, cyber insurance is worth serious consideration if you store customer data or operate online. It helps cover the costs if you’re hit by data breaches or online fraud.
Cyber threats aren’t just a risk for large corporations. In fact, hackers often target small businesses specifically because they’re less likely to have robust security in place.
Business interruption insurance
If you have to temporarily close your business due to a fire or flooding, business interruption insurance can help cover lost income and operating costs while repairs take place.
Directors’ and officers’ (D&O) insurance
Running a limited company or limited liability partnership (LLP)? Consider D&O insurance for small businesses. It protects directors, company secretaries, LLP members, and other key decision-makers if they are sued for things like breach of duty, negligence, misrepresentation, or wrongful trading.
If you’re the sole director of a small limited company, D&O insurance may still be helpful, especially if you’re seeking investment, working with contractors, or hiring employees.
How to choose the right insurance for your small business?
The insurance you need depends entirely on how your business operates. Ask yourself the following questions:
- Do I employ staff?
- Do I work with the public in person?
- Do I provide advice or professional services?
- Do I make or sell products?
- Do I store valuable stock or equipment somewhere?
- Do I store customer data or take payments online?
The answers to these key questions will identify the right mix of insurance cover for your business. An insurance broker or comparison website can also help you match policies to your industry needs.
How much does small business insurance cost?
There is no simple answer. Insurance costs vary based on factors such as your industry, business size, claim history, employees, and chosen cover levels. Here is a rough guide to typical starting prices for small business insurance in the UK:
- Public liability insurance: from approx. £50 to £150 yearly
- Employers’ liability: from approx. £75 to £200+ per employee
- Professional indemnity: from approx. £100 to £400 per year
- Cyber insurance: from approx. £100+ per year, depending on risks
You may be able to bundle your policies into a multicover package to reduce the total cost. Remember to compare both policy features and prices. The cheapest option isn’t always the best if it means you’re underinsured.
Set your business up with the right insurance
There’s no one-size-fits-all solution when it comes to small business insurance. Legal requirements like employers’ liability or van insurance are non-negotiable. In contrast, covers like public liability or product insurance should be based on your business type and day-to-day risks.
Taking time to choose the right cover keeps you compliant and gives you the confidence to focus on growing your business, knowing you’re protected from unexpected setbacks.
Ready to register a business? Pair your small business insurance with the ideal company formation package through Rapid Formations and get your venture off to the best possible start.
I’m Joe Chris, co-author at ukbusinessmag.co.uk and a long-time enthusiast of all things business and finance. My background is in digital marketing and e-commerce, and I love diving into trends that impact the UK business landscape. Through my writing, I aim to make useful, real-world advice accessible to business owners.
