insurance

which insurance should i take?

There are many different types of business insurance, some of which are compulsory and some of which are optional. Here is a breakdown of the main types of business insurance, whether your business is required to have them and what they cover.

employers’ liability compulsory insurance
You must have liability insurance in case an employee, customer or member of the public suffers an injury as a result of your negligence or breach of duty. Not only can you be sued, you also (since January 2007) face NHS claims for hospital treatment costs (including ambulance costs) and fines of up to £2,500 a day can be imposed on those without appropriate insurance.

Liability insurance will pay any compensation and legal costs due if you are found at fault. It covers bodily injury or disease sustained in the course of employment in the UK. By law an employer must have Employers’ Liability Compulsory Insurance (ELCI) for at least £5 million, although most insurers automatically provide cover for £10 million. ELCI must cover all your employers in England, Scotland, Wales and Northern Ireland.

This insurance is compulsory in the vast majority of cases. There are a few exceptions, but not many. For example, if your business is not a limited company and you are the only employee or you only employ close family members, you do not need ELCI. In addition, limited companies with only one employee, where that employee also owns 50% or more of the issued share capital in the company, are also exempt from ELCI. But most people have to have it.

Workers are generally defined as employees if you deduct National Insurance and tax from them and you control when and how they work (and they cannot employ a substitute when they are unable to work unlike the self-employed).

Make sure an authorised insurer issues your insurance policy or it will be invalid and you could face fines. It is easy to check the insurance provider is a member of the Association of British Insurers (ABI) on the ABI website. Insurance brokers can give advice on which companies offer suitable ELCI policies.

When you take out a policy and receive your insurance certificate your business must display it prominently so employees can easily read it. Copies must be kept for at least 40 years (yes forty!) or you risk £1,000 fines. Health and Safety inspectors can request to see the certificates.

public liability insurance
Public Liability Insurance covers the covers any awards for damages given to a member of the public and/or customers because of an injury or damage to their property caused by you or your business. It also covers legal fees, costs and expenses as well as costs of hospital treatment and ambulance costs. Premiums depend on the type of business, turnover and number of employees. However you do need professional advice as many conditions, exclusions and warranties apply. Even if you work from home and customers and members of the public visit you, you need to think about Public Liability Insurance. Certain businesses must have Public Liability Insurance and customers may require proof of adequate insurance before they will allow you to work for them.

product liability insurance (PLI)
Products you sell or supply must be “fit for purpose” and under the Consumer Protection Act 1987 you are legally responsible for any damage or injury that a product you supply may cause. PLI covers you against compensation awarded as a result of damage to property or personal injury caused by your product (and NHS hospital costs). Businesses often have between £1 million and £5 million of cover, the norm being £2 million.

Even if you did not manufacture a product, claimants can try to claim from you if you supply a faulty product. You will be liable for compensation if your business‘ name is on the product (i.e. the manufacturer made it for your brand), if your business repairs, refurbishes or changes it, or if you imported it from outside the EU, if you cannot clearly identify the manufacturer or the manufacturer has gone out of business. Otherwise the manufacturer is liable. If the product involves parts from different manufacturers, the processor is liable.

Even so you must also show that the products were faulty when supplied, that you gave consumers adequate safety instructions and warnings about misuse, that you included terms for return of faulty goods to the manufacturer or processor in any sales contract you issued to the consumer, and make sure your supply contract with the manufacturer or processor covers product safety, quality control and product returns. You even have to show you have good quality control and record keeping system.

PLI may not cover you against financial loses to a business or person caused by a faulty product which you manufactured, serviced or supplied. But it does cover against unforeseen circumstances such as product faults your quality control system could not trace. But bad workmanship is not covered and if products are inferior you may be unable to make a claim or get insurance.

pollution risk insurance
This is often covered as part of a public liability package, but pollution risk insurance covers losses and costs arising as a result of damage to the environment caused by sudden unforeseen circumstances. Businesses which have higher risk of pollution such as the oil and chemical industries may want specific policies that cover clean up costs, damages etc. Talk to your insurance broker if in doubt.

property owners’ liability insurance
This allows you to meet the costs and damages to a member of the public if they suffer accident or injury at your workplace. It includes the cost of hospital costs claimed by the NHS if someone is awarded personal injury compensation for incidents after January 29 2000. Generally it is included in a household policy. Check that if you insure your contents and business and a landlord insures the premises, that there is property owners’ liability in at least one of these policies. If you work from home, check your household insurance covers the business risks.

professional indemnity insurance
Consider this if you sell your knowledge or skills as it protects your business against compensation sought by a client if you make a mistake or have been negligent. It also covers legal costs. Obviously lawyers, accountants and financial advisers must have this insurance but others such as consultants, advertising and PR agencies opt to cover themselves.

directors’ and officers’ liability
Used to protect directors and officers. Health and safety, data protection, maintaining satisfactory accounts, fraud and negligence amongst other things are the responsibility of directors and insurance is available.

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