Guide
Choosing the right business insurance
A step-by-step decision guide to help small businesses identify which insurance they need, from mandatory cover like employers' liability through to risk-based options like cyber and business interruption insurance.
Getting the right business insurance means working through your requirements in a logical order. Start with what the law requires, then check what your contracts demand, and finally assess the risks specific to your business.
This guide takes you through each step so you can build up the right level of cover without paying for insurance you do not need.
Step 1: Identify mandatory insurance
Some insurance is required by law. If any of these apply, you must have cover in place before you start the relevant activity.
Employers' liability (EL)
If you employ anyone, you must have employers' liability insurance with a minimum of £5 million cover. This applies from the day you take on your first employee, including:
- full-time and part-time staff
- temporary and casual workers
- apprentices and interns
- volunteers you direct at work
- labour-only subcontractors
The only exemptions are sole directors with no employees who own 50%+ shares, and businesses that only employ close family members. Operating without EL insurance carries a fine of £2,500 per day.
Motor insurance
If any vehicle is used for business purposes, your motor insurance must cover business use. Standard social, domestic, and pleasure policies do not cover business driving. This applies to company vehicles, personal vehicles used for work travel (beyond commuting), and delivery vehicles.
Professional indemnity (PI)
PI insurance is legally required for certain regulated professions. Check with your professional body, as requirements vary. Professions where PI is typically mandatory include:
- solicitors and barristers
- architects
- financial advisers (FCA-regulated)
- accountants
- surveyors
- medical professionals
Step 2: Check contractual requirements
Even where insurance is not legally required, your contracts may make it effectively mandatory. Review these documents before deciding what cover to buy.
Client contracts
Many clients, particularly larger businesses and public sector bodies, require suppliers to hold specific insurance. Common contractual requirements include:
- public liability - typically £1 million to £10 million depending on the client
- professional indemnity - typically £1 million to £5 million for professional services
- employers' liability - proof of the statutory minimum or higher
Check your existing contracts and any tender documents. You may lose business opportunities if you cannot provide evidence of adequate cover.
Commercial leases
If you lease business premises, your landlord will usually require you to hold buildings insurance (if responsible for the structure) or contents insurance. Some leases require specific policy terms or minimum cover levels. Read your lease carefully before arranging premises insurance.
Supplier and venue agreements
If you attend trade shows, work on third-party premises, or supply goods to larger retailers, you may need to provide certificates of insurance. Event venues commonly require public liability cover of at least £5 million.
Step 3: Assess risk-based cover
Beyond mandatory and contractual requirements, consider what risks could cause your business serious financial harm. Not every business needs every type of cover.
Public liability
Consider this if customers or members of the public visit your premises, or if you work at client sites. It covers compensation claims for injury or property damage. Typical cover: £1 million to £10 million.
Products liability
If you manufacture, import, or sell physical products, products liability insurance covers claims when a product causes injury or damage. This is separate from public liability and is often included in a combined policy.
Cyber insurance
Consider this if your business holds personal data, takes online payments, or depends on IT systems. Cyber insurance covers data breach costs (including ICO notification), ransomware incidents, business interruption from system failures, and legal defence costs. The average cost of a cyber breach for a small business is significant, making this increasingly important cover.
Business interruption
If you have premises and would lose income during a disaster (fire, flood, major equipment failure), business interruption insurance replaces lost revenue while you recover. It usually runs alongside buildings or contents insurance.
Directors' and officers' (D&O)
If you are a company director, D&O insurance protects your personal assets if you face claims of wrongful acts in managing the company. This covers legal costs and settlements for allegations such as breach of duty, regulatory investigations, or employment disputes brought against you personally.
Step 4: Choose how to buy
You have three main options for arranging business insurance:
Direct from insurers
Major insurers offer online quotes for straightforward small business cover. This works well if your needs are simple (for example, a sole trader needing public liability only). You can compare prices quickly, but you are limited to that insurer's products.
Through an insurance broker (recommended for most businesses)
A broker searches across multiple insurers to find the best combination of cover and price. Brokers are particularly valuable if:
- you operate in a specialist sector
- you need multiple types of cover
- you have unusual risks or a claims history
- you want help when making a claim
Use the British Insurance Brokers' Association (BIBA) to find a broker. All BIBA members are FCA-regulated.
Trade association schemes
Many trade bodies negotiate group insurance deals for members. These can offer better rates than individual policies and are tailored to sector-specific risks. Check with your trade association before buying elsewhere.
Step 5: Get quotes and compare
When requesting quotes, provide accurate information about your business activities, annual turnover, number of employees, premises details, and any previous claims. Inaccurate information can invalidate your policy when you need to claim.
What to compare
Do not choose on price alone. Compare these elements across at least three quotes:
- cover limits - per-claim and aggregate annual limits
- excess - the amount you pay towards each claim (higher excess means lower premium)
- exclusions - what the policy does not cover (read these carefully)
- claims-made vs occurrence basis - PI policies are usually claims-made, meaning the policy in force when the claim is made (not when the work was done) responds
- insurer financial strength - check the insurer is authorised on the FCA register
Construction insurance requirements
Construction businesses typically need higher public liability limits of £5 million to £10 million, as most principal contractors and clients require this. You should also consider:
- Contractors' All Risks (CAR) - covers damage to the works, materials, and temporary buildings on site
- Plant insurance - covers owned or hired equipment
- Professional indemnity - required for design-and-build contracts
Not legally mandatory beyond EL, but almost always required by client contracts and principal contractors under CDM 2015 arrangements.
Food and hospitality insurance
Food businesses should ensure their public liability policy explicitly covers product liability for food, including food poisoning and allergic reaction claims. Also consider:
- Equipment breakdown - covers commercial kitchen equipment and cold storage failure
- Stock spoilage - covers loss of perishable stock from equipment failure or power cuts
- Licence protection - covers legal costs if your premises licence is threatened
Insurance often required by commercial leases, premises licences, and trade associations.
Tech and digital sector insurance
Technology businesses should prioritise professional indemnity (typically £1 million to £5 million) for software defects, project delays, and scope disputes. Cyber insurance is increasingly essential for:
- data breach notification and response costs
- ransomware and extortion payments
- business interruption from system outages
- regulatory defence costs (ICO investigations)
Consider IP insurance if you need to defend or enforce intellectual property rights.
Client contracts typically require PI cover of £1 million to £5 million. FCA-regulated fintech firms have additional requirements. Data breaches can trigger ICO enforcement action.
What to do next
Once you have identified your insurance needs:
- Arrange mandatory cover first - employers' liability and motor insurance must be in place before you start the relevant activity
- Meet contractual deadlines - check when clients or landlords need to see your certificates
- Set renewal reminders - especially for PI insurance on a claims-made basis, any gap in cover leaves you exposed
- Review annually - as your business grows, your insurance needs change. Review cover after hiring staff, moving premises, launching new products, or entering new markets