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Failure for a small business to incept appropriate insurance could result in the collapse of the business. For a small/start up business, deciding what insurance you should have probably ranks as one of the least exciting tasks. Purchasing insurance is certainly not a pleasure purchase but should rank high in priority. There are really 2 different categories that insurance can be put into. These are insurance that you are required to have by Law and insurance that you should consider to cover risks and disaster.
Clearly it is important for a small business to have the right insurance at the right price and with the right company. The best place to start this search is with an insurance broker. Most brokers will deal with a range of insurance companies who will provide a variety of benefits at varying prices. A good broker should be able to demonstrate that they have conducted a thorough and informed analysis of the market and recommend a solution(s) at a competitive premium.
You must use a broker that is registered by the FSA who should place insurance with authorised insurers working under the terms of the Financial Services and Markets Act 2000.
Insurance you are required to have:
1) Employers’ Liability (EL) Insurance
Most Employers are required by law to insure against liability for injury or disease to their employees arising out of their employment. Businesses are responsible for the health and safety of their employees while they are at work. Employees may be injured at work or become ill as a result of their work whilst in your employment. They may try to claim compensation from you if they believe that you are responsible.
The Employers’ Liability Act 1969 requires you to have at least a minimum level of insurance cover against any such claims.
You must be insured for at least £5m. In practice most insurers offer at least £10m.
You are only required to have EL insurance for people that you employ. However you should refer to insurers situations where you take on people who do not work exclusively for you, you do not deduct tax or NI, they are volunteers or on work experience. It is possible in certain situations that EL insurance may be required for these groups.
You can be fined up to £2500 for any day which you are without EL insurance. If you do not display the certificate of insurance or refuse to make it available you can be fined up to £1000. However, these figures could be incidental to the awards made to an employee for a serious injury caused through your negligence which EL insurance could have covered.
2) Motor Insurance
You must insure your liability to others, known as third party liability, which occurs because of a crash or other motor vehicle accident. This includes death, injury to anybody and damage to Third Party Property including other vehicles for a minimum of £250,000. Further additions to third party cover are fire and theft cover and accidental damage, regardless of blame.
You must advise your insurance company if you have a private vehicle and commence using this for business purposes. Unless you have the correct business use extension on your policy you are unlikely to be covered whilst using it for those purposes.
3) Engineering Equipment
Certain equipment has to be inspected at regular intervals and passed as safe by law. Examples are lifting tackle and pressure vessels. You can combine the inspection and maintenance with a policy to cover you against the risk of accidental damage, breakdown and explosion.
4) Insurance needed by contracts
A business should check all the contracts it has, such as under a lease or hire purchase agreement, to establish what insurance you are required to purchase.
Other types of insurance you can purchase:
1) Property Insurance
Covers destruction or damage to buildings, contents. Cover could be solely for fire or include other perils such as malicious damage, theft, storm, flood, lightning, subsidence and so on. You are likely to still need a specialist policy even if you work from home.
2) Insurance for Loss of Revenue/Profits
If the business is disrupted by fire or another insured peril this insurance can cover lost revenue or profit. Usually this is a very valuable benefit but there may be circumstances where it is not worthwhile. For example if your business is very small and it would be easy to operate quickly from another site it may not be necessary. In such a situation it may be better to insure against the cost of finding somewhere else to carry on working rather than for the full loss of revenue or profits.
3) Loss of Money
If your takings are in cash or near cash such as cheques, stamps etc then it may be worth covering loss of money against theft from your premises, or from homes of directors or employees or in transit.
4) Public and Product Liability
This covers Liability to third parties if your business causes injury or illness to them or damages their property. Product liability insurance covers you for these risks which occur as a result of the goods you are producing, selling or repairing.
It is very important to make sure that the level of indemnity is high enough. Recent damage awards in courts have been as high as £1m and beyond. Therefore always make £2m a minimum and maybe higher dependant on the size of your business and the activities you undertake.
5) Goods in Transit
If you transport goods in your own vehicles or by other means such as a haulier it is probably worth purchasing GIT cover for the loss of or damage to your goods.
6) Credit Insurance
This protects against your customers failing to pay. This cover is not so accessible to new start ups and you will probably have had to be in business for some time. Credit insurance can be particularly valuable if you have one large or a couple of large customers. If you deal mainly in payment on delivery then it is probably not worth purchasing.
7) Professional Indemnity Insurance
Claims for negligent advice or misconduct are continuing to increase. If you are the sort of business that provides expert advice PI insurance is a must and can cover you against claims from your clients for damages caused by such negligent advice.
8) Legal Expenses
This insurance would enable you to pay for legal assistance if you are involved in a contractual, debt recovery or employment dispute plus some other legal procedures. Usually modest when compared to overall premium spend and can be invaluable.
9) Keyman Insurance
If your business is heavily dependant on one or a few people for its future success then it is worth considering Keyman Life insurance. You can purchase a limit which would be paid to your business in the event of one of those people dying or being ill for a period.
10) Directors and Officers Insurance
Increasingly Directors and Officers of businesses are being pursued personally by claimants alleging negligence whether these be shareholders, employees or clients. Even if there is no case to answer the costs of defending this can be substantial. D&O can protect you against the legal costs of defending such a position and thereby protecting Directors’ own personal assets.
Other covers:
Glass, Fidelity (dishonesty by employees), computers and records, deterioration of stock.
In addition I would always recommend that a small business reads and understands all of the terms, conditions, excesses and warranties that apply to their policy. They may believe that they are adequately covered for theft for example but do not have the required alarm system thereby making cover for theft null and void. All brokers should explain such conditions and warranties prior to purchase but the client should always read their quotation terms, policy and schedule to ensure that there are no misunderstandings or hidden pitfalls.
Most brokers and insurers have cost effective instalment options at competitive rates to assist cash flow. If you are interested in paying over a period and this is not offered ask what is available.
Understand and check what the procedure is for reporting a claim and particularly a potentially devastating loss. Many policies include 24 hour assistance through insurers or loss adjusting services.
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