Business insurance

Whether you’re a contractor, freelancer, or small business owner, business insurance is a way to protect you, your business, your clients, and the general public. Having the correct business insurance policy can ensure financial support should an unfortunate event occur that affects your business.

In this article we explain the different types of business insurance, who they apply to, and what to look for when purchasing.

Why have business insurance?

Business insurance is beneficial in a number of ways, regardless of whether you're setting up as a limited company or if you'll be running your business as a sole trader:

• It can be the difference between staying in and going out of business, should a claim be made against you

• It offers peace of mind and reassurance that you’re protected from the main risks associated with running a business

• It demonstrates to your clients that you’re aware of your responsibility to protect their interests

• It protects you and your client if something goes wrong

Ultimately, having the correct business insurance policy helps support you, your business, your clients, and the general public should the need arise.

Professional indemnity

Professional indemnity insurance protects contractors, freelancers, and small businesses against claims of negligence.

Negligence isn’t the only factor that professional indemnity insurance covers. It can also protect you from:

• Loss of documents

• Loss of data

• Breaches of intellectual property

• Defamation

• Libel

With appropriate professional indemnity insurance, you’ll also be covered for any compensation you have to pay as a result of a claim against you, as well as any legal costs you incur in the process of a claim being made.

Example

Terry works as an IT contractor and has taken a job for a London financial firm. While working, he accidentally wipes a hard drive, losing vital customer data. The client makes a claim against Terry for a hefty sum due to

Negligence. Terry has professional indemnity insurance and is covered. If he didn’t, this

would be costly and could jeopardise his business.

Public liability

If you’re responsible for anyone that may be affected by your actions, public liability insurance is a must. Many contracts will insist that this type of insurance is in place before you commence work.

Public liability insurance provides protection from small to large incidents, as well as:

• Cover for damage to third-party property

• Cover for injury to third-party persons

• Cover for legal fees

Example

Karen is a designer and has been contracted to paint a large mural on the side of a building. While working on this, she accidentally knocks a tin of paint off a ledge which falls onto a passer-by. The passer-by sues Karen for a substantial sum. Karen has public liability insurance, which covers her for injury to a third party, allowing her business to keep running.

Employers’ liability

Employers’ liability insurance is a legal requirement for a business that has any employees. However, many contracts are standardised and will require you to have employers’ liability insurance, regardless of whether you actually have any.

With employers’ liability insurance, you need to be insured for at least £5 million. However, it is advisable to consider your risks and liabilities to assess whether you will need a higher level of cover.

The benefit of this type of insurance is that it’ll cover you if you have a substitution clause in your contract and can also provide cover should a spouse or family member be working for your business in some capacity.

If you run a limited company, are the only employee, and you own 50% or more of the shared capital in the business, employers’ liability insurance may not be required. However, it’s always best to check with an authorised insurer.

Example

Terry is working on a contract for a financial firm. He falls ill and sends Linda in temporarily to complete the work. As a temporary employee, Linda would be covered by the provisions in the employers’ liability section of Terry’s policy, should she injure herself at work as a result of Terry’s negligence.

Business interruption insurance

Business interruption insurance covers the loss of income that a business might suffer due to an unforeseen event.

A loss of income could have dramatic effects on your business - for smaller businesses, this could be disastrous.

Loss of gross profit

Business interruption insurance will cover your regular outgoings while you’re unable to trade. This includes staffing costs, premises costs, utility bills, etc. These are all ongoing costs you may still have, even if you’re unable to trade.

Loss of trading profit

If you suffer an insured loss, it doesn’t mean that you should have to suffer a loss in your regular profits. Appropriate business interruption insurance will look at your historical profits in a similar period and reimburse you accordingly.

Increased costs to continue to work

Business interruption insurance will also protect you from increased costs incurred as you continue to work after an event. For instance, you may need to maintain your current premises even though you can’t trade from them, but you may also need to secure new temporary premises in the meantime.

Get your cover

Using a trusted business insurance provider that can provide a policy that is specific to your business's needs is vital. Which is why Crunch works with insurance partner Qdos, offering all Crunch subscription clients 15% off of their business insurance cover. Don’t be left without business protection in the event of something unexpected, find out more on our partnership with Qdos today.

Frequently asked questions

When do I need business insurance?

You should have adequate insurance in place from the very first day you start trading.

Are contractors, freelancers, and small businesses covered by their clients?

Since you aren’t working under supervision or control, it’s very hard for a client to cover you, so it’s unlikely you’ll be covered.

How much is professional insurance?

Professional insurance costs vary depending on your type of business, the number of employees you have, and the level of insurance you require. A reputable insurance provider will be able to talk you through the various insurance available, helping you decide what’s best for you.

How can professional insurance support your IR35 status?

As a contractor, freelancer, small business or startup you will have heard the term IR35 mentioned. IR35 was introduced by HMRC to ensure that the tax you pay accurately reflects your employment status.

Showing financial awareness and having insurance - particularly professional indemnity - can be an indication of whether you’re an employee of a company and on the company’s payroll, or you’re a contractor. Professional indemnity isn’t a requirement for a traditional employee on payroll as they’d be covered by their companies insurance policy.

If you'd like another helpful checklist to help you choose the right protection for your firm, take a look at our small business insurance guide for more guidance.