If you are running a small business, one of the things that you can’t afford to overlook is business insurance. Not only does this insurance protect your business from potentially unaffordable unexpected losses, but some types of business insurance are actually a legal requirement.
But many small businesses don’t actually know what small business insurance covers. And even those that do wonder why it is so expensive. So what does it cover, and why does it cost so much?
What does small business insurance cover?
Businesses face a wide range of risks, so there is a wide range of different types of business insurance. Small business insurance can be tailored so that it meets the specific needs of your particular business.
Property insurance is the one that most people will recognise. This covers you if your property – such as your business premises, equipment and stock – is accidentally damaged or stolen. Depending on your business, you may need to extend your property insurance to cover property while it is being used away from your business premises.
Liability insurance is something that is less familiar to many people. This covers you if someone makes a compensation claim against you because they allege that you’re responsible for them suffering a loss. It covers any compensation awarded and it also covers any legal fees incurred as a result of the claim.
There are four main types of liability insurance. Employer’s liability – a legal requirement if you employ anyone – covers compensation claims made by employees. Public liability insurance covers compensation claims made by third parties. Products liability insurance is usually included in public liability insurance cover and covers compensation claims arising from products that you have sold or supplied. Professional indemnity insurance covers compensation claims arising from professional negligence such as giving bad advice.
Other types of business insurance include personal accident & sickness insurance, which replaces income lost if you are unable to work due to an accident or illness, legal expenses insurance which covers you against unexpected legal costs if you find yourself involved in legal action, loss of business following theft or damage of your property, and motor insurance which you are legally required to have if you use motor vehicles.
Why is small business insurance so expensive?
The simple answer to this question is the fact that claims are often expensive to settle by insurers.
It’s easy to think that because you haven’t made a claim in ten years, you shouldn’t be paying so much, but the fact that you haven’t made a claim previously doesn’t mean that you will never have to make a claim in the future. In part, you’re paying for peace of mind, but you’re also contributing to a fund that covers the losses of the few small businesses that are unlucky and, if your time comes, you’ll be glad that fund is there to help you.
It’s also easy to think that because you’re a small business, you’ll only have small insurance claims. Sadly, that’s not true. A small business is just as capable of generating large insurance claims as a large business. If you accidentally injure someone, for instance, the compensation claim made against you could easily cost in excess of £250,000 and large fires can be similarly expensive.
But it’s not all bad news because there are some things that you can do to reduce your insurance premiums.
How can you reduce your small business insurance premiums?
One way is to reduce your cover, but this could leave you exposed – it’s a mistake to undervalue your property or to lie about your annual turnover figure because if you do that, you’ll be penalised if you have to make a claim. Increasing your excess – the amount of each claim that you are required to pay – can result in a premium discount, though.
However, the best way to reduce your insurance premium is risk management. Risk management means taking action to identify and then either eliminate or minimise the risks that your business faces. Risk management reduces your premium in two ways.
First, insurers will often discount your premium if you take certain steps to reduce the risk of a loss. As an example, if you install a burglar alarm that can often result in your insurance premium being reduced.
Second, taking steps to reduce the risk of a loss will obviously reduce the risk of a loss and in turn, that means that there is less chance that you will find yourself having to make an insurance claim. One of the main things that affects the level of your insurance premium is how much you are costing the insurer, so keeping your claims low will keep your small business insurance premium low.
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