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 mandatory requirement?
Employers’ Liability (legal requirement)
The only insurance all businesses are legally mandated to have in place is Employers’ Liability (EL) Insurance.
EL will cover you if any of your employees suffers an injury or is sick as a result of working for your company.
Failure to take out sufficient cover could result in a daily £2,500 from the Health & Safety Executive, so there is no excuse.
Interestingly, there are some exemptions: if you are the sole director and employee of a company, there’s no legal obligation to take out cover. Find out more in our EL guide.
Commercial Motor Insurance (legal requirement if relevant)
If your company owns any vehicles, you must have at least third party cover in place – in case your drivers cause an injury, or damage to property.
Commercial Property Insurance (legal requirement if relevant)
As with residential property, you should take out sufficient buildings insurance cover. This will be mandatory if you have any type of borrowing or charge on the property.
Professional Indemnity Insurance (mandatory in certain professsions)
Although not a legal requirement, PI insurance is a mandatory requirement of some professional bodies. For example, if you are a solicitor, financial adviser, architect or chartered accountant, one of the conditions of your regulatory body is that you have sufficient PI cover in place.
For example, if you are a solicitor, SRA rules state:
Solicitors are obliged under the Solicitors Regulation Authority (SRA) Indemnity Insurance Rules to have PII in place at all times. New firms must have it in place before they start practising.
Other reasons why you might be obligated to take out insurance
It is required under a 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, most clients will only take you on if you have Professional Indemnity cover in place, as well as business liability insurance. This will typically be stated in the Schedule for Services within the contract.
Public liability insurance is not a legal requirement, although it is strongly recommended for businesses which deal with customers or clients, and those that work on customer premises.
It is also obligatory to have public liability insurance in certain industries such as construction, or your company simply won’t be able to do business without it.
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 certain types of insurance in place.
For example, if you want to be a member of the Federation of Master Builders (FMB):
It is a condition of being a member of the FMB that you have sufficient current public liability insurance, in addition to employer’s liability insurance, which is a legal requirement.
Common sense reasons to take out business insurance
It is perfectly possible to spend a lot of money on insurance which is neither necessary nor ever likely to be needed. The same applies in the business world as it does for individuals (see GAP and ‘gadget’ insurance for classic examples for consumers).
However, it makes a lot of sense to cover your business for the most likely negative scenarios. And you can do this without spending a great deal of money.
Assuming your limited company is under no legal or contractual obligation to take out a specific policy, we always advise small companies to at least take out employers and public liability insurance.
This will cover your business against potential claims from both employees and members of the public (including clients), and is very competitively priced.
If you are concerned about meeting the costs (in terms of time and money) of an HMRC tax investigation, then tax investigation cover also makes a lot of sense. Again, this type of cover is very reasonable – from £99 a year.
We’ve worked with Qdos over the past 15+ years – visit their website for competitively priced cover from a limited company specialist insurer.
