Business insurance: what you need and how to get it

When you start a new business, one of the key responsibilities you have as an owner or director is to protect the future prospects of the company. Part of this risk management process is taking out business insurance cover, so you’re protected against the inherent risks of trading and selling to the general public.

Let's take a look at what business insurance is, how it protects the business and the important ways to tailor your insurance cover to the needs of the business. 

What is business insurance and why does it matter?

Business insurance protects you and your business against financial losses from accidents, claims, property damage, cyber incidents and other interruptions.

Having insurance coverage in place is vital, whether you’re a one-person sole trader, an established family business or a brand-new startup. This can be even more urgent if you deal with customers (whether face-to-face or online), if you hire and employ staff, hold equipment or stock on your premises or give professional advice to customers.

How do you cover the cost of business insurance?

Depending on the size and type of your business, insurance premiums can become an expensive overhead. But if your cash flow doesn’t currently allow for this business cost, the simple solution could be to take out a short-term business loan.

A flexible loan, like an iwoca Business Loan, gives you a speedy injection of capital to cover the insurance expenses, while having cash left over to invest in the business. It’s the simple way to spread the cost and keep your business fully insured. 

What does business insurance cover?

Business insurance will typically bundle together all the essential cover needed by the average business. The base package will usually offer the most foundational insurance policies, with the option to add in more specific coverage as needed.

Basic cover will usually include public liability and product liability insurance, plus employers’ liability insurance (if you have employees), professional indemnity insurance (if you offer services) and property, contents and stock cover. It may also have business interruption cover, cybersecurity insurance, legal expenses cover and commercial vehicle cover, if required.

Do I legally need business insurance in the UK?

Employers’ liability insurance and commercial motor vehicle cover are the only mandatory legal requirements for a UK business. Employers’ liability cover is needed if you employ staff. Other covers are usually either a contractual requirement from your landlord or client, or a best practice procedure as part of your risk management. 

How does business insurance help my business grow?

Having insurance helps you win tenders and apply for leases where insurance cover is mandatory. Having cover protects your cash flow if the business is threatened and can also enhance levels of confidence in lenders and other investment partners. 

If you experience an unplanned emergency, having insurance also reduces your business downtime and your risk of disruptive claims from third parties.

The different types of business insurance explained

There are many different types of insurance policy that may be included in a bundled business insurance package. Let’s take a look at the most common kinds of cover.

• Public liability insurance: This protects your business against claims from third parties (e.g., customers and suppliers). It protects you against claims for injury or property damage arising from your general business activities.
• Product liability insurance: Product liability cover is essential if your business buys or supplies goods. This policy covers the cost of legal defence and compensation if one of your products causes injury, death or property damage to a third-party customer. 
• Employers’ liability insurance: This is a legal requirement for almost all UK businesses that employ staff. It protects your business if an employee claims for injury or illness caused by their work or the working environment.
• Professional indemnity insurance: Professional indemnity cover is essential if you’re a service provider. It covers you for legal costs and compensation if a client suffers a financial loss due to a mistake, negligence or error in the advice, design or service you’ve provided to them as a client.
• Commercial property insurance and stock insurance: By combining these areas of cover, you protect your physical business assets against perils like fire, theft, or flood damage. The cover protects the building structure itself (if owned), your office equipment, tools, machinery and stock inventory.
• Business interruption insurance: This cover is vital for protecting your income as a business. Business interruption cover replaces the lost gross profit and covers ongoing fixed costs if your business can’t trade normally. This may be due to damage caused by an insured peril (like a fire or flood).
• Cyber insurance: Cyber cover protects you against first-party costs (e.g., system restoration, notifying customers) and third-party claims arising from a data breach, ransomware attack or other cybersecurity incidents.
• Commercial motor insurance: Personal motor insurance doesn’t cover business usage. Because of this you need commercial vehicle insurance that protects your cars, vans and trucks for commercial usage, including transporting goods, visiting clients or running business-related errands.
• Legal expenses insurance: Often an add-on, this covers the legal costs associated with defending the business in common commercial disputes, such as contract breaches, employment tribunals or HMRC tax investigations.

How much does business insurance cost?

The market price of business insurance varies considerably depending on a number of important cost drivers. Let’s explore what the key drivers might be:

1. Trade risk: There are different risks associated with different industries and types of business activity. For example, manufacturing companies using heavy machinery are more risky than remote consulting companies. High-risk trades attract a higher premium due to the increased probability of large claims.
2. Turnover: Total income is often used as a measure of a business's scale and exposure to third parties. Higher turnover usually implies more contracts, products or customers, increasing the risk and, therefore, raising the price.
3. Claims history: Prior claims, regardless of fault, may indicate a pattern of risk or insufficient controls to the insurer. A poor claims history almost always results in a significantly increased renewal premium.
4. Cover limits and excesses: If you have a higher sum insured through liability or property policies, this increases the insurer’s potential payout, thereby increasing the cost. Conversely, if you accept a higher excess on the policy, this will generally reduce the cost of the premium.
5. Staff headcount: For mandatory employers' liability cover, the total number of employees directly correlates with risk. If you have more employees, this means a greater chance of workplace injury claims, which is a key driver for raising the overall policy price.
6. Premises and location: Insurers will review your postcode to analyse risks like local crime rates, flood history and geographic volatility. Operating in a higher-risk location will result in a more expensive premium.
7. Security controls: If you fit preventative security measures, like certified alarms, CCTV or secure perimeter access, this reduces the likelihood of loss or damage. This often translates into a discount on the property and contents premium.

What’s the typical structure of a business insurance package?

A business insurance package will usually have a foundational base of public liability and product liability insurance. To this will be added extra policies like professional indemnity cover, commercial property cover and business interruption insurance. Combined in this way, you have extensive coverage against most risks. 

What are the best ways to save on your business insurance costs?

By having a heightened awareness of the main cost drivers for business insurance, you can take proactive steps to reduce the cost of your premium.

This can include:

• Bundling all the relevant policies together into one composite package of cover
• Raising the excess that you agree to pay when making a claim
• Agreeing to fit the relevant security precautions at your premises
• Paying the annual fee as one lump sum, rather than opting for monthly instalments

Using a business loan to spread the cost of an annual premium

Annual payment often reduces the total premium, as monthly payments will attract interest and a higher end price. If you’re struggling to stretch your cash flow enough to pay that annual fee, taking out a flexible, short-term loan could fill that cash gap.

With an iwoca Business Loan, you get fast access to additional capital, giving you the funds to pay that annual insurance premium and reinvest in the business. 

How to compare business insurance quotes effectively

Before you sign up with an insurer, it’s important to do some research into the business insurance market. Prices can vary significantly, as can the level of cover provided and the basic limits on the policy cover.

To compare quotes across multiple insurers:

• Have your data and business information ready: Make sure you have all the required information regarding company turnover, claims history, staff numbers, equipment/stock values and the required limits of liability and indemnity cover for the products and services you provide.
• Like-for-like checks: Understand what the policy small print states around exclusions, territorial and jurisdiction limits, the business interruption indemnity period (is it 12 or 24 months of cover?), warranties (having alarms fitted, for example) and the stated excess levels for the policies.
• Service quality: What are the insurer’s stated service line agreements (SLAs) for claims handling, what helpline support is provided and how quickly can documentation be provided for landlords and corporate customers, etc. 

If you’re trading in a higher-risk industry, or have more complex insurance needs, it’s sensible to partner with an insurance broker. A broker can liaise between your business and the insurers to find the most relevant insurance cover, at the most cost-effective price for a custom bundle of cover. 

Choosing the right insurance cover for your business

When choosing business insurance, it’s vital to align the policies and cover with your risk profile as a business. Consider whether your business has premises or works on a mobile basis, how much customer footfall you experience and whether you offer advice or provide custom design for your customers.  

It’s worth thinking about the inherent risks you’re exposed to in your industry sector, whether you hold online customer data that needs protection and if you plan to use commercial vehicles that will need motor insurance. 

Set realistic sums for your contents and stock insurance and make sure you’ve accounted for seasonal peaks. And ensure that any business interruption policies factor in your forecasted gross profit and have a realistic recovery time.

Keep your compliance in line with the policies’ warranties, so you have proof of any staff training, updated security measures and cyber security measures. 

Ultimately, having the right business insurance cover is about knowing your business inside out and customising the package to fit your exact risk requirements.

iwoca: spread your business insurance costs with flexible funding

Getting the right insurance for your business helps you protect your assets and keep your operations moving, but sometimes claims might be delayed or denied based on exclusions. If you find yourself facing cash flow problems while you’re waiting on a claim settlement or dealing with an exclusion, flexible business finance can keep your operations running. 

iwoca Business Loans can provide up to £1m in fast capital to help you cover your costs, pay for a policy upfront for the best deal, or invest in improvements to keep your business secure. Apply in minutes, repay early with no fees, so you stay in control of your finances.  

With our short-term loans, you can:

• Borrow between £1,000 and £1 million
• Pay it back between 1 day and 60 months
• Repay early with no extra fees

Apply for an iwoca Business Loan today

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