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The success or failure of small businesses often hinges on fine margins. A single decision or an unforeseen event — positive or negative — can tip the balance between triumph and collapse.

Business insurance provides a safety net to prevent your business from suffering losses due to an error, accident or incident. This guide explains everything you need to know about these policies.

What is small business insurance?

Small businesses encounter numerous risks that could jeopardise their livelihood if the unexpected occurs. Some insurance policies mirror those available to individuals — like van insurance, which operates much like car insurance but for commercial vehicles. Others are unique to the business world, tailored specifically to safeguard small businesses from work-related risks.

What types of business insurance are there?

There are several types of business insurance for start-ups and small companies, and the nature of your work and your company’s structure dictates what cover you need. Here are the main types of business insurance:

• Public liability insurance shields small businesses from claims related to personal injury or property damage on their premises. For example, it covers incidents like a visitor slipping and breaking an ankle. This type of insurance is essential for businesses that interact with people, including customers, couriers, clients, or even cold callers.

• Professional indemnity insurance protects you against legal claims made by clients who maintain they have suffered reputational or financial losses due to negligent advice or a service your company provided. It’s suitable for firms that advise clients, such as accountants, architects and surveyors, or represent them in some way, such as journalists, lawyers and copywriters.  

• Employers' liability insurance safeguards businesses against claims from employees for work-related injuries or illnesses. Policies are required to cover at least £5 million to account for potentially high legal fees, medical expenses, and compensation payouts.

• Business contents insurance functions like home insurance but is designed for work-related items. It covers losses involving stock, equipment, tools, cash, and even clients' belongings kept on the business premises.

• Goods in transit insurance covers your business assets or clients’ possessions while they’re transported between sites.

How do you buy business insurance? 

Small business insurance policies can be purchased individually or bundled into packages, giving business owners the flexibility to compare options from different providers. It’s important to look beyond the premium, as coverage details can vary significantly.

The cheapest policies often come with basic features, low coverage limits, and numerous exclusions—any of which could lead to unpleasant surprises if you need to make a claim.

In short, it’s always a good idea to do the following:

• Identify your needs: Identify the risks that companies like yours face. Online forums, trade associations and potential clients can help here. For example, if you plan to approach a local authority or large company, find out what cover they require small business partners to hold. This could be public liability insurance if you’re a cleaning company working in a shopping centre, or a surveyor working for a local council.  

• Think bundled insurance and add-ons: Many insurers group insurance policies together, tailoring them to specific groups, such as tradesmen, the self-employed or shop owners. Some policies are available as add-ons to core policies. For example, courier insurance may be a bolt-on to commercial vehicle cover. Considering these policies can save you time and money.

• Shop around: Once you’ve pinpointed the types of insurance you need, search for policies on comparison sites. Brokers can also be helpful if you are in an uncommon line of work.

• Read reviews: Reviewing websites and blogs can give an insight into how individual policy providers respond to claims.  

• Pay annually: By paying annually you can avoid the interest charges that come with monthly Direct Debit payments.

• Investigate tax benefits: Most business insurance premiums are considered allowable business expenses, meaning they’re usually tax-deductible. This can help reduce your overall tax bill while ensuring your business has the protection it needs.

How much does small business insurance cost?

Here’s an overview of the typical range of premiums small businesses can expect to pay for various types of insurance in 2024, according to financial analyst :

• Professional indemnity insurance: £85 to £1,000+

• Public liability insurance: £50 to £450+

• Employers' liability insurance (per employee): £60 to £200+

• Commercial vehicle insurance: £2,000 or more per vehicle

• Goods in transit insurance: Around £200 per year

• Cyber insurance: From £132

What determines the cost of small business insurance?

Prices vary depending on the type and level of cover you require, as well as factors such as:

• Your business risk: Certain professions are inherently more prone to claims than others. For instance, off-licences face higher risks of shoplifting, theft, and related crimes compared to greengrocers. Similarly, labourers are more likely to file personal injury claims than office workers due to the physical nature of their job.

• Your location: Firms serving clients and customers in urban communities are more likely to claim on insurance than those based in rural areas. 

• Size and scale: The number of clients and employees you have can impact the cost of your insurance coverage.

• Claims history: Your insurance premiums may be higher if you’ve made claims recently.

Is small business insurance a legal requirement?

Most types of business insurance are not mandatory, but certain ones are legal requirements in specific circumstances:

• Employers’ liability insurance is a must for anyone who has people working for them, even if your staff are volunteers, trainees, part-time or temporary. The only exception is if you only employ immediate family members. Failure to get employers’ liability insurance as soon as you take on staff can result in a fine of £2,500 for each day you’re not adequately insured. You could also face a £1,000 fine if you don’t display your insurance certificate. 

• Public liability insurance is a legal requirement in certain situations, such as when you hire out horses for riding, operate a riding school, or offer pony and donkey rides. In these cases, having public liability insurance is necessary to obtain the local authority licence required for these businesses.

• Commercial vehicle insurance policies are a legal requirement for anyone driving a work vehicle on UK roads. Courier insurance is a legal requirement if you run a courier service.

Clients, such as local authorities and some large companies, frequently require any company working with them to hold public liability insurance or professional indemnity insurance. 

Equally, some industry bodies and regulators require professionals working in certain fields to have professional indemnity insurance. Examples include solicitors, chartered surveyors and financial advisers. Deliberate failure to have this cover could even lead to a professional disqualification. For instance, a solicitor could be struck off.