What is limited company insurance and do you need it?

Once you become a limited company, there’s a long list of risk and governance elements to plan for before you start trading. Near the top of this list will be insurance coverage – taking out the necessary insurance policies needed to protect you, the business, your customers, employees and other direct stakeholders.

Let’s explore what business insurance is, the main types to consider and what each type of insurance policy does to protect your business.

What does limited company insurance cover?

Business insurance is a way for your limited company to protect itself against some of the key risks of trading and operating. You can take out insurance policies to protect you against injury claims, property damage, professional mistakes or loss of income.

Risk management is a fundamental responsibility as a business owner or director. It means understanding the potential risks, issues, legal frameworks and claims that could affect your ability to trade, make money and grow. 

Although you have the limited liability protection of being the director of a limited company, you still need to safeguard yourself against legal risks and threats. 

You also need to protect your stakeholders (both customers and employees) against any potential risk that could occur in the course of delivering your products or services.

What are the main types of business insurance?

Each type of business insurance is tailored to a specific type of risk. Policies will cover everything from protecting the business from legal claims, to protecting the safety of your employees when working on your premises. 

Top insurance types to have on your radar will include:

• Public liability insurance
• Professional indemnity insurance 
• Employers’ liability insurance 
• Property and contents insurance.

Do I legally need business insurance as a limited company?

As a UK limited company, you’re only legally required to take out two specific types of business insurance. Employers' liability insurance is required if you have employees. You must take out an employers’ liability insurance policy to cover you for up to £5 million, and the cover must be supplied through a reputable insurer.

If you or any of your employees drive for work, you must have at least third-party motor insurance. Vehicle insurance keeps you covered if you, or an employee, cause any type of injury or damage to a person, vehicle, animal or property.

Should my limited company take out public liability and professional indemnity insurance?

Although only employers’ liability insurance and vehicle insurance are mandatory, most limited companies will also take out public liability, professional indemnity and commercial property insurance, if applicable to their business.

Having these policies in place helps to mitigate risk and provide much-needed insurance payouts if the worst were to happen.

Key types of limited company insurance explained

If you’ve never insured your business before, understanding the full range and choice of business insurance can be challenging. 

There are many industry-specific and niche insurance policies available. But for the average UK limited company, there are only a few key insurance types that will be essential for your specific business needs. 

Here’s a breakdown of the main insurance types that should be on your radar:

1. Public liability insurance covers your legal costs and compensation if your business activities cause injury to a member of the public or damage to their property. As a limited company, it’s important to protect the business against claims arising from your normal business operations, even if you’re working off-site or hosting visitors on your premises.
2. Professional indemnity insurance is essential if your business offers advice, design or services (things like writing, consulting or production). This kind of policy covers legal defense and damages if a client claims they suffered financial loss due to a professional error, mistake, or negligence in your work.
3. Employers’ liability insurance is a legal requirement for almost all UK companies that have employees. The insurance covers compensation and legal fees if a staff member becomes ill or injured as a result of the work they do for the business. This helps to protect the company's finances, and potential future success, if one of your team makes a claim for compensation. 
4. Commercial property insurance comes in two types. Buildings insurance protects your business premises in the event of fire or flooding, etc. Contents insurance protects your physical assets – such as your computer hardware or office equipment – against risks like fire, theft, flood, or accidental damage. This is critical if you need to quickly replace critical business tools.
5. Directors’ and officers’ (D&O) insurance covers the legal fees and compensation costs resulting from personal claims made against directors or officers for wrongful acts in managing the company. UK directors need it because the limited liability veil does not protect them from personal legal action regarding negligence or statutory breaches.

What insurance do most limited companies take out?

Most limited companies will also be employers, so are legally bound to take out an employers’ liability insurance policy. If you operate business vehicles, such as delivery vans, vehicle insurance will also be a legal requirement. 

The vast majority of limited companies will also take out public liability insurance (if they’re customer-facing), professional indemnity insurance (if they provide services) and commercial property insurance to cover their business premises and equipment. 

It’s also advisable to take out both directors’ & officers’ insurance, so you’re doing everything you can to manage your risks as a director. 

Is insurance different if I’m a sole director with no employees?

Yes, the main difference is that a sole director of a limited company with no employees does not require employers’ liability insurance. With no workforce to protect, there’s no legal requirement to take out this insurance. 

You will probably still need the other basics, such as professional indemnity insurance and (if you meet customers on your business premises) public liability insurance too. Contents insurance is recommended to protect your equipment.

What specialist insurance cover is available for limited companies?

Alongside the standard insurance that limited companies will need, there are also specialised policies that deal with more specific risks. 

To give you an idea of the range of available policies, let’s take a look at a few of the specialist insurance policies that could be applicable for your business. 

• Landlord insurance is vital if your limited company owns property and lets it out to tenants. This kind of policy protects the building structure, fixtures, and fittings against damage (fire, flood), protects against tenant injury claims and includes compensation for lost rental income.
• Cyber liability insurance covers the costs associated with a data breach or cyberattack. The policy will cover the costs of system restoration, legal fees, regulatory fines (GDPR), credit monitoring for affected customers and public relations costs to manage any reputational damage caused by the breach.
• Contractor insurance combines public liability, professional indemnity and tools cover for contractors. This package of combined insurance is needed to satisfy client contracts that require insurance and also ensures that you and your equipment are fully protected while performing contracted work.
• Trade or sector-specific policies are tailored to the unique risks of specific industries. For example, if you’re a construction business, you may need construction industry insurance to protect your tools, equipment and employees,  or malpractice cover if you’re a medical firm.

How much does limited company insurance cost in the UK?

Insurance costs can fluctuate considerably, depending on the type of business you run, the industry or sector that you trade in and the amount of cover that’s needed.

The business insurance comparison site, Simply Business, states that business owners can get basic public liability insurance for as little as £5.94 per month. But when you factor in additional insurance policies, like professional indemnity insurance and D&O insurance, this price can escalate quickly. 

Let’s look at two examples of limited company insurance, as demonstrated on the Simply Business site:

As you can see, there’s a considerable difference in price between the overall cost of insuring these two businesses for a year. 

Factors that can influence the price you pay include:

• Industry or sector risk: If you trade in a high-risk sector, such as construction or manufacturing, you’ll generally incur higher premiums. This is due to the increased statistical likelihood of large liability claims or workplace accidents.
• Number of employees: The total cost of employers' liability insurance will increase the more employees you have. However, your premium may be cheaper on a per-employee basis as the team size grows.
• Cover levels: Higher limits on the amount an insurer is willing to pay out for a claim (e.g., £5 million vs. £1 million) will directly lead to a higher premium, mainly because the insurer's exposure to risk is greater.
• Claims history: If you have a history of frequent or high-value claims, this suggests a higher future risk to the insurer, resulting in significantly increased premiums at renewal.
• Location: If your business premises are located in areas with a high crime rate (theft, vandalism) or environmental risks (flooding),  you’ll generally be charged a higher premium for property-related cover.
• Experience of the business owner: A well-established business with a long trading history is often seen as lower risk than a new venture, potentially resulting in a more favorable premium.

Bundling multiple policies together with one insurer can help save you money. For example, some insurers will offer contractor insurance packages that bring together all the insurance policies you might need, but at a reduced price point.

How to compare quotes and find the right policy

If you’re ready to find the perfect business insurance, it’s sensible to do your homework and fully research the current UK market.

Finding the most appropriate cover, at a price that the business can afford, is vital, so you’re protected at all levels, but also managing your cash flow carefully.

A good starting point is to use comparison sites, like GoCompare or Quote Goat, to check out competing prices for similar policies across a range of different insurers.

You could also engage an insurance broker to navigate the insurance market. Brokers act as an intermediary between you and the insurer, helping you find and arrange the most suitable insurance policy from the wider market.

Important things to look for are:

• Cover limits: How much protection is being provided and what’s the maximum payout you would receive if you made a claim?
• Excess on the policy: The excess is the fixed amount of money you, as the policyholder, must pay toward an insured loss before the insurance company pays the remainder of the claim.
• Exclusions: An exclusion clause limits what can be claimed in the provisions of an insurance policy. It will limit or entirely eliminate coverage for certain perils, losses, damages or types of property.
• Claim response times: This is the amount of time an insurer contractually takes to acknowledge, accept, or deny a formal claim you, the policyholder, make after a loss. Fast response times are obviously preferable if the business wants to continue trading. 
• Regulation: UK insurers must be regulated by both the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). You should also check that the insurer is part of the Financial Services Compensation Scheme (FSCS), so you're covered in the event of your insurer failing and being unable to honour your claim. 

As your limited company grows, takes on more people and diversifies into new markets, it’s vital to review your insurance provision. You may need extended employers’ liability insurance if your team gets to a certain size, for example.  

Keep your insurance provision reviewed and updated, and always look for the most cost-effective prices, while also ensuring you have the cover that’s required. 

Flexible finance for business risk

Having the right insurance in place is essential for limited companies, but it’s only one part of a robust risk strategy. Claims can take time, and some events may fall outside your cover. That’s where flexible finance comes in.

By combining comprehensive business insurance with an iwoca loan, you can build financial resilience into your operations – ready to handle delays, exclusions or any surprise costs that come your way.

Explore iwoca’s flexible business loans and give your limited company the support it needs, when insurance alone isn’t enough.

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