Most UK businesses need at least some form of business insurance, even if they are small or newly established. While only certain types of policy are legally required, operating without appropriate cover can expose a business owner to significant financial risk and legal costs.

Whether you need business insurance, and the type you need, depend on factors like your legal structure, whether you employ people, how you operate, and the nature of your work.

What type of business insurance is legally required?

If you employ staff, employers’ liability insurance is a legal requirement. This includes full-time employees, part-time employees, and, in some cases, contractors or casual workers (depending on how often you use contractors, the terms of work, and so on).

Employers’ liability cover protects your business if an employee becomes ill or injured as a result of their work and makes a compensation claim against your business. The minimum level of cover is set by law at £5 million (although most insurers start at £10 million as standard), and failure to hold a valid policy can result in fines. Compensation costs can climb quickly, so it's a good idea to take out as much employers’ liability insurance as you can.

Some businesses in regulated professions may also need to hold professional indemnity insurance to be accepted by their governing bodies, although this requirement stems from professional rules rather than legislation.

Optional types of business insurance

Other types of business insurance are not legally required, but businesses commonly take them out for an extra layer of protection. These policies can cover claims from customers, property damage, intellectual property theft, loss of income, cyber incidents, and more.

Optional insurance is often just as important as compulsory cover, particularly for businesses that interact with the public or rely heavily on equipment or data.

There is no single business insurance policy that suits every organisation. Most businesses combine several types of cover to reflect their risks. Here are some types of business insurance that may be useful for you:

Public liability insurance

Public liability insurance covers claims made by members of the public for injury or property damage caused by your business. As such, public liability insurance is particularly relevant for businesses that deal with customers in person, or that work on third-party premises or with third-party property. For example, builders, cleaners, dog walkers, home carers and so on can all benefit from public liability insurance.

While not a legal obligation, public liability insurance is often requested by clients, landlords, event organisers, or even local authorities for certain licensed professions (animal boarding, for example).

Professional indemnity insurance

Businesses that provide advice or professional services often take out professional indemnity insurance. This covers the potential costs of claims arising from errors, omissions, or negligence in the work you provide.

This type of insurance is common among consultants, designers, accountants, and IT professionals. It's especially useful if you deal with members of the public in a B2C capacity, but it is also relevant for B2B professionals.

Buildings and contents insurance

Buildings and contents insurance covers damage to business premises and the items inside them, such as equipment, stock, and furniture. This kind of insurance is important for businesses that own or lease physical premises. A good buildings and contents policy covers risks like fire, flooding, or theft.

Employers’ liability insurance

Compensation claims made by employees who suffer illness or injury because of their work are covered by employers' liability insurance. As noted earlier, most employers are legally obliged to have this kind of insurance.

Employers’ liability insurance has to meet minimum legal standards and be clearly displayed or made available to employees on request.

Goods in transit insurance

Goods in transit insurance covers loss or damage to items while they are being transported. It's a good idea for businesses that deliver products, move tools between sites, or rely on couriers to take out goods in transit insurance.

It's worth noting that standard vehicle insurance doesn't usually cover goods being carried for business purposes.

Product liability insurance

Product liability insurance covers claims related to injury or damage caused by products you sell or supply. This applies whether you manufacture the products yourself or source them from elsewhere. Businesses that sell physical goods often take out product liability insurance alongside public liability insurance to ensure they're fully covered in the event of legal claims.

Tool insurance

Tool insurance protects tools and equipment used for work, whether they are stored on site, in a vehicle, or at home. This type of cover is common among tradespeople and contractors, as loss or damage to essential tools can be a big blow to business operations.

Cyber liability insurance

Cyber liability insurance covers losses from data breaches, cyber attacks, or system failures. This can include legal costs, client data recovery, and customer notification expenses. As more businesses rely on digital systems, cyber insurance is becoming increasingly relevant, even for small firms. What's more, with the increasing scale and scope of data protection laws worldwide, firms that lose client data to cyberattacks are likely to incur significant financial losses from fines, fees, and other costs. 

The business insurance you need depends on your specific risks and your specific industry. A self-employed consultant working from home will face different risks than a retailer with a physical shop and employees. There's no standard checklist.

Key considerations include whether you employ staff, whether you interact with the public, whether you provide professional advice, and whether you rely on specialist equipment or data. Reviewing these factors can help you choose appropriate cover without paying for unnecessary policies.

If you do decide you need business insurance (and it is a very good idea!), make sure to do your research before taking out any policy. Use MoneyExpert’s comparison tool to check the best insurers for your needs and find the perfect policy or policies for your needs.