In short: Employers' liability insurance is the main legal requirement: once you employ someone, you need at least £5 million of cover, with some exceptions, and fines can reach £2,500 a day. Motor insurance is required for business vehicles. Other covers, such as public liability and professional indemnity, are optional but often expected by clients.
Insurance protects your business from costs you could not easily pay yourself: a claim from an injured customer, damage to your premises or a mistake in your work. Some cover is required by law. The rest depends on what you do and the risks you face.
Covers required by law
Employers' liability insurance
If you employ people, you must usually have employers' liability (EL) insurance from the day you become an employer. It covers claims from employees who are injured or become ill because of their work.
According to GOV.UK:
- you need cover of at least £5 million from an authorised insurer
- you can be fined £2,500 for every day you are not properly insured
- you can be fined £1,000 if you do not display your certificate or refuse to show it to an inspector
- you must make your certificate available to employees, for example at the workplace or on your intranet
You do not usually need EL insurance if you only employ close family members, or only employ people based outside England, Scotland and Wales. Other exemptions can apply, for example to some companies where the only employee is also the owner. Check the full rules on GOV.UK or the Health and Safety Executive (HSE) website, or ask your insurer. Use the Financial Conduct Authority (FCA) register to check your insurer is authorised.
Motor insurance
Any vehicle used on the road needs at least third-party cover. Personal car insurance often excludes business use, so tell your insurer if you drive for work.
Covers that may be required by contracts or regulators
- Professional indemnity – some professional bodies and regulators require it, such as for accountants, solicitors and some financial services.
- Public liability – many clients, councils and venues ask for proof before you work for them.
Common optional covers
Public liability insurance. Covers claims from members of the public injured or whose property is damaged because of your business. Important if you meet customers, work in clients' homes or attend events.
Professional indemnity insurance. Covers claims that your advice or work caused a client to lose money. Useful for consultants, designers, IT specialists and other advisers.
Product liability insurance. Covers claims caused by products you make, supply or sell.
Buildings and contents insurance. Protects premises, equipment and stock against fire, theft and flooding. Home insurance usually does not cover business equipment or stock.
Business interruption insurance. Helps replace lost income if you cannot trade after an insured event, such as a fire.
Cyber insurance. Covers costs after data breaches or cyber attacks.
Directors' and officers' (D&O) insurance. Protects directors personally against claims about their decisions.
Key person insurance. Pays the business if a key person dies or cannot work.
How to choose
- List the risks: who could be harmed or lose money because of your work?
- Check legal and contract requirements first.
- Decide how much risk you can carry yourself.
- Compare quotes, and read exclusions and excesses, not just the price.
- Consider a broker for complex or higher-risk businesses.
- Review cover every year and whenever your business changes.
Common mistakes
- Using home or car insurance for business without telling the insurer.
- Hiring a first employee without arranging EL insurance.
- Under-insuring stock or equipment.
- Not reading what is excluded.
- Letting a policy lapse.
Insurance and limited companies
A limited company protects your personal assets from most business debts, but insurance protects the company itself from claims that could otherwise close it. The two work together. Insurers will ask for company details, so have your company number and registered office ready.
How Form My Company can help
We do not sell insurance, but we set up the company that buys it. Taking on staff? Our Fully Inclusive Package includes PAYE registration with HMRC. A Registered Office Address gives you a professional address for insurance and contract paperwork. For advice on cover, speak to an FCA-authorised broker.
Frequently asked questions
Is business insurance a legal requirement in the UK?
Employers' liability insurance is required by law once you employ staff, with some exceptions. Motor insurance is required for vehicles. Most other covers are optional.
How much employers' liability cover do I need?
At least £5 million from an authorised insurer, according to GOV.UK.
Do I need public liability insurance?
It is not a legal requirement, but many clients and venues ask for it, and it is sensible if you meet the public or work in their premises.
Do I need employers' liability insurance if I am the only director and employee?
You may be exempt in some cases where the only employee is also the owner. Check the exemptions on GOV.UK or the HSE website, or with your insurer.