There are so many types of business insurance out there – protecting everything from your employees and property to your reputation and intellectual property.
But is it a legal requirement to have business insurance in place? And even when it is not, are there situations when insurance is still mandatory for a limited company?
When is business insurance a legal requirement?
Employers’ Liability Insurance
If your limited company employs staff, you will normally be legally required to have Employers’ Liability (EL) Insurance.
EL insurance covers your business if an employee suffers an injury or becomes ill as a result of the work they do for your company.
You must have cover of at least £5 million from an authorised insurer. Failure to have the required cover can result in a fine of up to £2,500 for every day you are not properly insured.
There are exemptions. For example, a company where the owner is the only employee may not need EL insurance. Find out more in our Employers’ Liability Insurance guide.
For the official rules, see the GOV.UK guidance on Employers’ Liability Insurance.
Motor Insurance
If your company uses vehicles on public roads, the appropriate motor insurance is also a legal requirement.
At least third-party motor insurance is required. This covers liability if a driver causes injury to another person or damage to another vehicle or property.
If you use your own vehicle for business journeys, make sure your personal motor policy also covers the type of business use involved.
Professional Indemnity Insurance (mandatory in some professions)
Professional Indemnity (PI) insurance is not generally required by law, but it can be a requirement of a professional regulator or professional body.
For example, regulated professions including solicitors and certain financial services businesses may be required to maintain appropriate PI cover.
SRA-authorised law firms, for example, must maintain qualifying professional indemnity insurance in order to practise. You can read more about the requirements in the SRA Indemnity Insurance Rules.
When insurance may be compulsory for other reasons
Even where there is no general legal requirement to buy a particular policy, your company may still be required to have insurance because of a contract, lender, landlord, regulator or membership organisation.
It is required under the terms of a business-to-business contract
If you’re a limited company owner, chances are you will enter contracts with other businesses.
Often, you will have to fulfil the conditions of a contract – including agreeing to take out sufficient insurance cover.
If you are an IT contractor, for example, many clients and agencies require Professional Indemnity and Public Liability insurance. The required level of cover will usually be stated in the contract or schedule of services.
Public liability insurance is not generally a legal requirement, although it is often required by clients, main contractors or site operators and is worth considering if you deal with members of the public or work on client premises.
This is particularly common in industries such as construction, where you may be unable to work on certain sites without the required level of cover.
Property insurance may be required by a lender or lease
There is no general legal requirement for a limited company to insure commercial property.
However, if your company owns a property subject to a mortgage or other borrowing, the lender will normally require adequate buildings insurance as a condition of the finance.
Insurance requirements may also form part of the terms of a commercial lease.
It may be a requirement of trade association membership
In certain cases, if you are a member of a trade association, you may have to have particular types of insurance in place.
For example, the Federation of Master Builders (FMB) requires members to maintain appropriate insurance cover.
Protect your limited company with Qdos
Qdos specialises in insurance for contractors and small businesses, with cover for some of the risks limited company directors commonly face.
- Professional Indemnity – from £13.50 per month, with £100k to £5m cover
- Public Liability – from £4.58 per month, with £1m to £10m cover
- Legal Protection – from £5.88 per month, with up to £50k cover for legal disputes
Common sense business insurance
It’s easy to spend money on insurance you don’t really need. The same is true for businesses as it is for consumers.
Rather than buying every policy available, focus on protecting your limited company against the risks most likely to cause financial damage. In many cases, you can do this for a relatively modest annual cost.
Start with any insurance your company is legally, professionally or contractually required to have.
Beyond that, public liability insurance may be sensible if you deal with clients or members of the public, while professional indemnity insurance is particularly relevant if your company provides professional advice or services.
If you employ staff, employers’ liability insurance will normally be a legal requirement rather than an optional extra.
Directors’ and Officers’ insurance
Limited liability doesn’t protect directors personally in every situation. Directors’ and Officers’ (D&O) insurance can cover certain legal costs and claims made against directors personally in connection with the way they have managed the company.
Tax investigation cover
If you’re concerned about the cost of dealing with an HMRC enquiry, tax investigation insurance is also worth considering. Policies can cover professional fees incurred during an investigation.
Relevant Life Insurance
Company directors may also benefit from Relevant Life Insurance. This is life cover paid for by the company rather than personally and, where the relevant tax conditions are met, can be a tax-efficient way to provide life insurance for a director or employee.
You can also request a quote via our specialist broker.
We’ve worked with Qdos for more than 15 years. For competitively priced business insurance from a specialist provider, visit the Qdos website.