Insurance

What Type Of Insurance Does A Limited Company Need?

Allison S Robinson | 27 September 2022 | 2 years ago

What Type Of Insurance Does A Limited Company Need

As a limited company, the business is legally distinct from its shareholders and directors. This means that limited companies have different obligations to be aware of when it comes to insurance.

With so many insurance products available, it’s natural to wonder what type of insurance a limited company needs. You are legally required to hold employers’ liability insurance if employing anyone and all business vehicles must be properly insured. On top of this, company directors are strongly advised to hold professional indemnity insurance, directors and officers insurance, public liability insurance, product liability insurance, buildings & contents insurance, and business interruption insurance.

Read on for more detail on each type of insurance and how it can help your business manage the risks it faces.

Business Insurance That All Limited Company Owners Need

Employers Liability Insurance

At a minimum, all businesses should have employers’ liability insurance, which covers you if an employee is injured or becomes ill as a result of their work. Whilst this isn’t mandatory if you’re the sole director and hold 50% or more of the share capital in the company, if you employ anyone then it is a legal requirement to have a valid policy.

The minimum level of cover required by law is £5 million but it’s worth considering a higher level of protection, particularly if your business is high-risk or you have a lot of employees. If you’re found to be operating without the proper cover in place, you could face an unlimited fine.

Buildings & Contents Insurance

If you rent commercial premises, you will be required to insure it against damage or loss as part of the lease agreement. You should check your lease carefully to establish where the insuring liability falls to make sure that you’re fully covered for fire, theft, and accidental damage.

Insurance That All Limited Company Owners Should Consider

Consider liability insurance

Depending on the products and services offered, your individual needs and risks, you may also want to consider taking out other types of business insurance, such as product liability insurance or professional indemnity insurance. Whilst the exact type of insurance you need to purchase will depend on the nature of your business and the risks involved, by speaking to an insurance broker, you can make sure that your limited company has the right level of cover in place.

Here is an overview of the main insurance options to consider:

Employers’ Liability Insurance

This covers you for claims made against you by employees who suffer illness or injury at work. It is a legal requirement if you employ any staff, including part-time, temporary, or agency workers.

If you employ anyone in your business, including part-time and temporary staff, you must have a valid employers’ liability insurance policy in place. If you don’t have employer’s liability insurance and an employee suffers an illness or injury at work as a result of their job, they could sue your business. If the case is successful, you could be liable for any damages and legal costs, which could run into thousands of pounds.

Professional Indemnity Insurance

This covers you for claims made against you by clients or customers for professional negligence as a result of suffering financial loss due to your professional advice or services. Whilst often required by professional service companies such as consultancies, lawyers, design or IT support, even if your business doesn’t offer professional services, as a company director you still have a duty of care to shareholders and employees.

If you’re accused of misrepresentation, breaches of professional duty, or giving negligent advice, professional indemnity insurance can help to protect you. Professional indemnity insurance isn’t a legal requirement, but if your business offers any type of professional advice or service, it’s something you should seriously consider taking out.

Directors And Officers Insurance 

Directors and officers’ liability insurance, or management liability, is insurance cover that offers financial protection to those who are the director, partner or officer of a company. It will cover awards made by the court against the insured individual for decisions or actions taken in their role as a company director.

If you’re a director or senior officer of your company, you could be held liable for any losses suffered by the business as a result of decisions or actions made in your role. Directors and officers liability insurance can help to protect you against these types of risks.

Public Liability Insurance

This covers you for claims made against you by members of the public who suffer injury or damage to their property as a result of your business activities. This could include, for example, a customer slipping on a wet floor in your premises or tripping over a loose paving stone outside your office. It could also cover you from third party claims if you damage someone’s property while you are working for them, such as spilling paint on a carpet.

If you are found to be at fault, you could be liable for the cost of any medical treatment as well as any repairs or replacement required. Public liability insurance can help to cover these costs. This insurance is needed if you have customers or clients who visit your premises, or if you work at client premises.

Public liability insurance isn’t a legal requirement, but it is something that most businesses should consider taking out.

Product Liability Insurance

Product liability cover protects you from claims made against you by members of the public who suffer injury or damage as a result of using a product supplied by your business. For example, if a food product makes them ill or if one of your products is faulty and causes injury or damage to property.

For example, if you sell electrical goods and one of your products causes a fire, product liability insurance would cover the cost of any damage caused. It is particularly important for companies who manufacture or supply products, but can also be relevant for companies who import or distribute products.

Product liability cover isn’t a legal requirement, but if your company manufactures, supplies or sells products, it is something you should consider taking out.

Buildings And Contents Insurance

You may also need other types of insurance such as buildings and contents insurance, business interruption insurance or vehicle insurance. Buildings insurance covers the structure of your commercial premises as well as any fixtures and fittings, such as sanitary ware, and can also cover external features such as boundary walls, signage, and landscaping.

Contents insurance covers the contents of your commercial premises, including stock, tools, machinery, and office equipment. It is important to check that your policy covers you for all of the items in your business as some insurers will only cover items above a certain value.

Buildings insurance is not a legal requirement, but if you own the premises that your business occupies, it is something you should consider taking out. Contents insurance is also not a legal requirement, but if you have contents in your commercial premises that are valuable or essential to your business, it is something you should consider taking out.

Business Interruption Insurance

This covers you for the loss of income if your business is unable to trade following an insured event, such as a fire, flood or theft. It can also cover the additional costs incurred if you need to move to alternative premises whilst repairs are being carried out.

For example, if a fire at your premises means that you have to close your business for a period of time, business interruption insurance can help to cover the loss of income during that time. It can also cover the additional costs incurred if you need to move to alternative premises whilst repairs are being carried out.

Whilst not a legal requirement, this type of insurance is something that businesses should consider taking out, particularly if their business is dependent on having a physical premises.

Vehicle Insurance

If your business uses vehicles, including cars, vans, motorcycles and lorries, you will need to insure them against damage or loss. You should check your policy carefully to make sure that it covers you for all of the vehicles and activities that you use them for.

For example, if you use your car for business purposes, you will need to make sure that your insurance policy covers you for business use.

Motor Vehicle insurance is a legal requirement if you use a vehicle for business purposes. This includes cars, vans and trucks. If you use your own car for business purposes, you will need to take out business car insurance. This is in addition to the regular car insurance that you are required to have by law.

There are three main types of vehicle insurance:

  • Third party only: This is the minimum level of cover required by law. It covers you for any damage or injury caused to other people, including passengers, or their property.
  • Third party, fire and theft: This covers you for the same as third party only, but also covers you if your vehicle is damaged by fire or stolen.
  • Comprehensive: This covers you for the same as third party, fire and theft, but also covers you for any damage to your own vehicle.
This is just a simple overview of the main types of insurance that a limited company needs to consider. By speaking to an insurance broker, you can make sure that your business has the right level of cover in place based on the activities that you do.

How Much Does Insurance Cost?

Any business, regardless of its size, needs some form of insurance. The cost of the insurance will depend entirely on the level of cover needed and the type of insurance taken out.

As all insurance is specific to the person, property, or things being insured, it’s impossible to give a realistic indication of the price here, other than to say that the cost of an insurance premium is usually a fraction of the amount of money it would cost the policy holiday to replace or compensate others without the insurance policy in place.

For example, retail business insurance for a shop selling electrical goods worth £50,000 would cost in the region of £500 to insure against loss or damage by fire, water, theft, or other insured events. The same level of cover for a business with premises and contents worth £1 million would cost around £2500. In comparison, the cost of replacing all the stock and repairng the building in the case of a fire would be hundreds or thousands of pounds.

The best way to find out how much it will cost to insure your business is to speak to an insurance broker who can tailor a policy to your specific needs.

When Should You Take Out Insurance?

When to take out insurance

Ideally, you should take out insurance when you first start your business. This will ensure that you are covered from the outset and can avoid any gaps in cover but if you are already up and running, it’s never too late to take out insurance.

The main thing to remember is that most policies have a clause that state that you must not be aware of any events which could give rise to a claim before the policy is taken out.

For example, if you are taking out buildings insurance and your premises have already suffered water damage, you will not be covered for this as the insurer will consider it to be a pre-existing condition.

Other good times to consider your insurance needs are when you move premises, start offering new products or services, expand your team or start to work in different locations. All of these things come with their own risks and considerations and having relevant insurance protection could provide valuable peace of mind that you won’t have to find large sums of money should something go wrong.

What Happens If You Don’t Have Insurance?

If you don’t have insurance and something happens which is covered by your policy, you will have to pay for the repairs or replacement yourself. This could be a significant financial burden, particularly if the damage is extensive.

Not having insurance can also have other implications. For example, if your business is based in rented premises, your landlord may well require you to have certain types of insurance in place as a condition of your tenancy agreement.

If you don’t have the right level of coverage and something happens, your landlord could take legal action against you to recover any costs they have incurred as a result.

It’s also worth noting that some professional associations and trade bodies will require you to have specific types of insurance in place before you can become a member. This is often the case with occupations such as therapists, counsellors, and engineers.

Summary

We hope this article has helped you to understand the type of insurance a limited company needs as well as an overview of the financial protection that full and valid insurance can offer your business against unexpected bills, legal expenses and compensation costs.

To recap, the type and amount of insurance needed by a limited company will depend on the business activity, the business location, and the size of the company. For example, a small home-based business in the UK will need different insurance than a large manufacturing company.

The most common types of insurance for businesses in the UK are public liability, vehicle insurance, employers’ liability, directors insurance, product liability, professional indemnity, and property insurance.

 

Topic

Insurance

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