Do businesses need insurance? The ultimate lowdown
In this article, we'll cover:
You might think the answer to ‘do businesses need insurance?’ is an easy ‘absolutely!’ However, the yes is more complicated than you think. You can’t just get any old business insurance and call it a job done. Your assets and liabilities for your unique business need assessing to work out the most cost-effective and comprehensive insurance available to you.
Of course, there are also types of insurance you need and types of insurance you want. We’re going to take a look at all the possible options on the market and break down what each of them is, how they protect you, and whether they’re worth investing in.
Why do I need business insurance?
The main reason to take out business insurance is to protect yourself. It’s the bouncer to your business club; the lifeguard to your brand pool; the ranger to your start-up safari. It safeguards you in the unfortunate event there’s an incident or things go wrong.
We all make mistakes sometimes – personally or professionally. But unlike your personal life, a sorry doesn’t always cut it. Customers often want compensation, and the right business insurance offers settlements, avoids court costs or long legal battles, and stops your having to fork out. Certain types of insurance also cover you for losses in the event of sickness or lower trading periods.
Please note: Employer’s liability insurance is a legal requirement if you have employees, as per the Compulsory Insurance Act 1969. Furthermore, regulatory bodies or trade associations might stipulate the need for certain insurance policies, such as professional indemnity, for those working for limited companies.
Insurance can be expensive. So, to help you get covered for less and keep on working, we’ve partnered with Covéa Insurance to give Checkatrade tradespeople 20% off premiums. Find out more:
Checkatrade members save 20% on specialist insurance with Covea
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Checkatrade members get 20% off insurance with CovéaFind out more
What type of business insurance do I need?
As a tradesperson, there are three main types of insurance worth considering:
- Public liability
- Employers liability
- Professional indemnity
Let’s take a look at what each of them does, how they protect you, and whether you really need them.
Public liability insurance (PLI)
Public liability insurance covers the costs for public incidents associated with your business activities, including personal injuries and loss of or damage to your customer’s property.
For example, suppose a member of the public makes a claim that your carlessness on site resulted in a broken arm due to a ladder falling on them. In that case, public liability insurance will pay out their compensation (if they win the case).
Although PLI isn’t mandatory if you’re a sole trader, not having it might exclude you from certain jobs and opportunities, such as construction sites or larger contracts. Customers and other businesses want to know they’re protected if they hire you.
All Checkatrade members must have PLI to be able to be a member, whether they’re a sole trader or limited business.
The cost of public liability insurance will vary depending on the size of your business, how much cover you need, and how risky your work is. To help you get covered for less and keep on working, we’ve partnered with Covéa Insurance to give Checkatrade tradespeople 20% off premiums.
Employers Liability (EL) Insurance
This is a non-negotiable when you hire people to work for or with you. As soon as you’re classed as an employer, Employers’ Liability (EL) insurance is mandatory. You need to take it out with an authorised insurer, and you need it to cover you for at least £5 million.
Employers’ liability insurance covers you in the event an employee is injured or becomes ill due to the work they do for your company. This kind of compensation is costly, so EL insurance is there to take on the associated costs, protecting both you, your company and your employees.
The cost of your insurance will depend on various risk factors, the size of your company, and the extent of your insurance.
Read more about employers’ liability insurance on the government website.
Professional Indemnity (PI) Insurance
Don’t confuse professional indemnity with public liability insurance. They’re not the same. PLI protects you from compensation claims due to accidents, while PI protects you from claims against costly mistakes you make while doing your work.
PI insurance is there in the event you mess up, and even if you didn’t but your customer thinks you did. It safeguards you against any legal or financial ramifications and also boosts your trust factor with clients who might not work with you otherwise.
What insurance do I need as a sole trader?
Although it’s not a legal requirement for a sole trader to take out public liability insurance, we would recommend considering:
- Third-party insurance (aka third-party liability insurance): Covers you again third party claims re: injury or damage of property
- Product liability cover: Only worth it for products you manufacture that might cause injury or malfunction
- Tax investigation insurance: Pays out for time and costs associated with any HMRC investigations on your business
- Professional indemnity cover: Good to have for tradespeople who want protection from claims made due to supposed professional negligence
- Business-specific insurances: Policies unique to each business; for example, motor, trade credit, and key man insurance
Of course, if you drive a vehicle, you will need to insure this. Find out more about van insurance.
Did you find this blog helpful? If so, read our other helpful trade guides for even more advice!
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