An Introduction to Business Insurance
Through experience we have found that many business owners are confused by the different commercial insurance policies available to them and struggle to select a policy which is right for their business needs.
At KDW Commercial we are experts in helping businesses find the right protection to suit their business needs. We have a deep understanding of how the level and type of protection required will vary from business to business.
This guide has been created to provide you with an overview to the most important types of insurance that your business may need.
Why do you need Business Insurance?
• Any business that employs people is legally liable to protect their staff. If any of your staff, even if they are only a sub-contractor, are involved in an accident or injured whilst at work, you, the employer, will be legally liable.
• As the recent events in the North of England have shown, flooding can cause utter devastation. If your business premises are affected by a natural disaster it can totally disrupt or in some cases halt the running of your business. Costs will be incurred while the damage is repaired.
• If you are providing a service or product to the general public your business may find itself facing claims for compensation from unhappy customers. They may believe that there was a problem with your product/service or that a mistake was made which ended up costing them money. If this happens you may need funds to cover legal representation, when required, or the cost of compensation.
• Many employers now consider taking out health insurance as an employee incentive. By offering Health Insurance it shows that you care for your employees and may help your business in attracting a higher level of candidate. On the other hand your business needs healthy employees to be able to operate successfully. Private health insurance can mean that employees are treated quicker and remain healthier.
• If your business is a limited company with shareholders, then you may need to consider what will happen to the business in the event of death or critical illness of a shareholder. In the unfortunate event that something happens to a shareholder their shares could be put up for sale, which potentially could cause problems for the business.
• Whilst natural disasters such as flooding can have a huge impact upon your business it is also vital to consider other situations that could impact upon your businesses operations, such as fire or theft.
What are the types of insurance available?
Commercial Property Insurance
Most Commercial Property Insurance will generally cover your business against the following:
• Flooding
• Fire
• Theft
• Burst Pipes
• Storms
• Riots
Commercial Property Insurance is generally split into two categories; Building Insurance and Contents Insurance.
Building Insurance will cover the cost of rebuilding or repairing your business premises; if they are damaged or destroyed. If you are simply renting your property the responsibility for Building Insurance will lie with your landlord. It may be worth checking with potential landlords that they have Building Insurance in place, when you are looking for business premises to rent.
Although Building Insurance is not a legal requirement when purchasing a business premises, it may be a condition of your mortgage offer. When deciding how much to insure your premises for you should insure against the cost of rebuilding your premises, not its current market value.
We recommend checking the terms and conditions of any policy, so you are aware of what you will and will not be covered against; for example general wear and tear such as thinning carpets and cracked paint jobs will not be covered under a Building Insurance policy.
While Building Insurance takes care of your premises bricks and mortar, Contents Insurance covers your businesses stock, equipment and furniture against theft or any damage. This means office furniture and equipment is replaced quickly, without your business suffering any additional costs.
The level of cover varies between providers, with some specialist insurers offering policies which will also cover personal belongings of staff and visitors that are on site when the incident occurs. Again it is important to check the terms and conditions so you are clear on what’s included.
If your business has more stock on site at particular times of the year, such as Christmas, you should inform your insurer, so you are fully covered at all times.
Within Contents Insurance there are two types of policies to choose from:
1. Replace as new – this policy will replace an item with a new one, when it has been damaged beyond repair or stolen.
2. Indemnity Insurance – instead of replacing a damaged or stolen item as new, this policy will take into account the wear and tear and pay the current value of the item.
Business Interruption Insurance
This type of insurance will cover your business in instances where your business is unable to continue operating. This is particularly useful to protect against unforeseen events such as floods or fires.
Unlike Property Insurance which only covers the cost of damage to properties, Business Interruption or Consequential Loss Insurance (as it is sometimes known) will cover the cost of any loss of income. This ensures that your business is able to carry on paying employees and any debtors, whilst the repairs are being completed.
Professional Indemnity Insurance
Sometimes referred to as PI Insurance, Professional Indemnity Insurance covers your business against compensation payments or legal costs if a customer/client believes that you or an employee has made a mistake with the work or professional advice that they received.
Even if you haven’t made a mistake, you are likely to need legal representation which can run into thousands of pounds. If in the unfortunate event you are found to be liable Professional Indemnity Insurance will pay out the compensation costs. This insurance won’t be necessary for all businesses however it is recommended for the following professions in particular:
• IT Professionals
• Designers
• Management and Business Consultants
• Accountants and Book Keepers
• Architects
• Engineers
Employers Liability Insurance
This type of business insurance is a legal requirement and businesses that are found not to have this can face a hefty fine. This policy will cover your business for any employee that is taken ill or has an accident at work. It is important to note that even volunteers are considered as employees.
However as stated in the Health and Safety Executive Handout published by the government there are a number of professions that are exempt from this:
• Most public organisations including government departments and agencies, local authorities, police authorities and nationalised industries;
• Health service bodies, including National Health Service trusts, health authorities, primary care trusts and Scottish health boards;
• Some other organisations which are financed through public funds, such as passenger transport executives and magistrates' courts committees;
• Family businesses, ie if all of your employees are closely related to you (as husband, wife, civil partner, father, mother, grandfather, grandmother, stepfather, stepmother, son, daughter, grandson, granddaughter, stepson, stepdaughter, brother, sister, half-brother or half-sister). However, this exemption does not apply to family businesses which are incorporated as limited companies;
• Companies employing only their owner where that employee also owns 50% or more of the issued share capital in the company. [Source 1]
For more information on Employers Liability Insurance please read the Health and Safety Executive Handbook or contact one of our Commercial Advisors.
Public Liability Insurance
Although it is not a legal requirement, Public Liability Insurance is deemed an essential policy to a high number of businesses.It covers a business against claims from members of the public who experience a loss or an injury as a result of your businesses activities. For example if a customer slips or trips over on your business premises they could claim compensation for their injuries. If you are found to be responsible for the accident, your Public Liability policy will cover the cost of compensation and any legal costs that may be incurred.
Public Liability insurance can also cover smaller claims, for example if a barista in a coffee shop spills a drink over a customer’s laptop and breaks, the coffee shop will be liable for the cost of a replacement laptop.
Whilst this insurance gives you peace of mind that in the event that a mistake or accident occurs, that your business will be able to cover the cost of legal representation and any compensation that you are ordered to pay.
As with any insurance policy it is essential that you check the inclusions and exclusions, to ensure that you have the right level of insurance in place for your business.
Shareholder Protection Insurance
While the passing away of a shareholder is understandably a traumatic event to friends and family, it can also have a direct impact upon a business. The shareholders beneficiaries may need to sell their shares, if the surviving shareholders do not have the funds available to purchase them.
The remaining shares could then be bought by a competitor or a person that potentially does not have your businesses best interests in mind. Shareholder Protection Insurance will give the surviving shareholders the funds to be able to purchase the shares.
We recommend that as well as Shareholder Protection Insurance, Shareholders have a legal contract in place setting out what will happen in these circumstances. The combination of Shareholder Protection Insurance and a legal agreement will mean the continuing shareholders are able to buy the deceased’s fund without struggling to find the money and the family of the deceased shareholder will receive appropriate financial compensation.
Relevant Life Plan
A Relevant Life Plan is a term assurance plan, which allows employers to provide an individual death in service benefit for an employee. The Relevant Life Plan is paid for by the employer.
It is designed to pay a lump sum if the employee dies whilst employed during the length of the policy. As the premium is paid by the company this in effect reduces the cost of the policy as they are paid pre tax and NI.
Key Person Cover
In the unfortunate event a key person within a business is diagnosed with a critical illness or passes away, a business could find itself without the vital skills and experience it needs to survive.
This is where Key Person Cover can be useful for a business. Similar to Relevant Life Plan, a lump sum is paid out to the company or business partners when a key person passes away or is diagnosed with a critical illness.
The money can be used to allow the business to carry on trading as normal, cover recruitment costs or to continue paying the key persons salary while they recover from their illness.
Please note that a key person is normally the business owner, director or any employee with specialist skills or experience.
Do you need help with your Business Insurance?
We hope this guide has proved a useful introduction to you for business insurance. We are happy to talk to you about the different policies available and search the whole of market to find a suitable policy for you and your business.
Please contact Lawrie Jellows for more information.
T: 01727 85 22 99
E: help@kdwcommerical.co.uk