How to ensure your insurance is right for your business

A mistake traders make is to think buying insurance is a chore, to be done quickly and at the cheapest price. 

But buying the cheapest insurance could cost you more in the long run, particularly if your policy does not have the appropriate level of cover for your business. Around £22m is paid out in commercial insurance claims everyday, according to The Association of British Insurers. 

Here, Which? explains what types of insurance businesses need and lists five things you need to know before purchasing it. 

What insurance do tradespeople need?

The first thing you need to do is identify the insurance you need and which might be a nice-to-have. 

Motor

Legally you must have your vehicles insured, not just for business use but specifically for the kinds of jobs you might drive to and what might transport. 

The Motor Insurance Bureau regularly goes on patrol with the police, stopping commercial vehicles and checking that the vans are carrying only what the insurer was told they would. 

Any variation and the insurance is void – that’s six points on your licence, a £300 fine for driving uninsured and your vehicle impounded until you can buy correct cover. 

Tell your insurer everything you might ever transport or the types of job you might do, especially as the coronavirus pandemic saw many traders and business diversity to make ends meet. 

Liability – employers’, public and product

If you employ anyone you must, by law, have employers’ liability insurance. But you almost certainly need to have public liability – to pay up if you accidentally injure or cause property damage to a client or even a passer-by. 

If you make or sell anything then you may need product liability too.

Professional Indemnity

In certain professions, your regulator or professional body will insist you have professional indemnity cover. This covers financial loss suffered by customers as a result of wrongful advice. 

Even if it’s not a requirement, if you are giving advice as part of your service, consider PI cover.

Tools and equipment

It’s easy to underestimate how much your tools would cost to replace if they were stolen from your workplace or van. This is because most of us build up our tool collection over time, but if everything is stolen, you’ll need to replace them all at once with open market prices.

You should also make sure you are covered for any specialist tools you hire. 

Other specialist insurance

Cyber - if you trade heavily using the internet, you might need cover against hacking and data loss.

Directors’ and officers’ (D&O) – while limited companies technically limit this liability, the individuals still have personal responsibility for their actions. Brokers recommend limited companies buy D&O cover, though most firms decide based upon their size and tax requirements. The bigger you get, the more this becomes an issue.

Business interruption (BI) – the Covid pandemic threw BI policies under the spotlight, but there are a whole host of external factors that could prevent you from being able to work or to complete specific jobs.

Why insurance matters

One Trusted Trader feared a £600 bill when his tools were stolen from his van, but fortunately he had insurance so he could get back to work quickly.

The trader, who wished to remain anonymous, told Which?: ‘Seeing the van felt like being kicked in the stomach by a horse. You immediately know you’re a couple of hundred pounds down, or even thousands. It’s gut wrenching. 

‘Although I had a lot of my tools with me, they got some big tools I wasn’t using – things like a router, a nail gun and a mitre saw. Those tools are very expensive but they’re all easy to pick up and carry off.

‘I called the police, but they couldn’t really do anything. Luckily, I had insurance with AXA. They were very good. They asked me for some receipts for the tools, which I had, and it got dealt with quickly enough. It wasn’t hard work to get it sorted. 

‘Insurance was a nice backup to have when it happened. Everyone suffers setbacks, it’s all about how you deal with them.’

How to find the best insurance for your business 

No two policies are the same and there are other factors you should consider besides the price.

Some companies can compare policies, such as Defaqto, but remember that there could still be differences between five-star rated providers as they may have scored differently in each category. 

The alternative is to take professional advice from an insurance broker, who will ask you questions and explain the real risk you face to the underwriters. They may be able to add cover, or reduce exclusions, without necessarily increasing the price. 

You could search for one using the British Insurance Brokers’ Association

You also may be able to find one that specialises in small businesses, such as FSB Insurance, which was set up with help from the Federation of Small Businesses.

Five things you need to know before purchasing 

David Perry of FSB Insurance has five key tips for tradespeople buying insurance:

•  Always provide as much information as you can about what you do and, how and where you do it. For example, many standard policies exclude working at height, or with heat, or outdoors. So, though most of your work might be done in standard houses, if you ever work in blocks of flats, or on scaffolding outside, you need to make sure you have told your insurers and that they have agreed to extend the cover to those activities.
•  Provide evidence of how well you run your business and how low the risks are. Detail any additional security measures you have against theft, your health and safety processes and training and your business continuity plans.
•  Think about how much risk you are prepared to cover yourself. Could you accept a higher excess, meaning small losses are not claimed for? However, if you do this make sure you can still afford the excess if the worst did happen. 
•  Insure for the correct values. Underinsurance can cause huge headaches in the event of larger claims. And keep any receipts for purchases such as tools 
• Consider getting professional advice from an insurance broker.