What Insurance Does a Small Business Need?
If you run a small business, insurance might not be the first thing on your mind - but it's one of the most important tools you have to protect your work, your people, and your future. From legal requirements to optional policies that offer peace of mind, this guide breaks down what small businesses in the UK need to know about business insurance.
Do I Need Business Insurance?
For many small businesses, insurance isn’t just a formality, it’s a key part of managing risk. Not every policy is mandatory, but most provide financial protection if something goes wrong.
Legal Requirements for Small Businesses
If you employ anyone (even part-time, temporary, or voluntary staff), Employers’ Liability Insurance is required by law in the UK. This cover helps if an employee becomes ill or injured as a result of their work.
Certain professions, such as accountants or architects, may also need to carry Professional Indemnity Insurance to meet regulatory or industry body standards.
Why Insurance Matters Beyond the Law
Even when it's not compulsory, having the right insurance:
- Helps cover the cost of accidents or mistakes
- Protects physical assets like tools or equipment
- Reassures clients, suppliers and partners
- Supports business continuity if your work is disrupted
In short, insurance helps keep your business running when the unexpected happens.
Recommended Insurance Policies for SME Businesses
There’s no one-size-fits-all approach to business insurance, but the following covers are generally recommended for many small businesses.
Public Liability Insurance
What it does: Public Liability covers your business if a member of the public is injured, or their property is damaged, because of your work.
Examples:
- A customer slips on a wet floor in your shop
- You accidentally damage a client’s property while working onsite
Public Liability Insurance is not a legal requirement, but it’s often expected by clients, landlords, or local councils.
Employers’ Liability Insurance
What it does: Employers' Liability covers injury or illness claims made by employees (including apprentices, temps, or volunteers) due to their work.
This is legally required if you have any staff. The standard level of cover is £10 million.
Example: A warehouse assistant is injured lifting heavy stock and makes a claim.
Professional Indemnity Insurance
What it does: Professional Indemnity protects against claims of negligence, errors, or poor advice that result in financial loss for a client.
It’s particularly important for:
- Consultants
- Designers
- Financial or legal professionals
Some industries require this type of cover either by law or as a condition of client contracts.
Example: A marketing consultant provides incorrect analytics data, causing a client to make a costly mistake.
Additional Insurance for Small Business Owners
Depending on your trade or day-to-day risks, you may need extra protection beyond the core policies.
Tools and Materials Insurance
What it does: Tools and Materials covers tools, equipment and materials used in your work, including protection against theft, fire, and road traffic collisions.
Example: A van is broken into overnight and specialist tools are stolen.
This type of cover is especially useful for tradespeople and mobile professionals.
Choosing the Right Insurance for Your Business
Not all businesses face the same risks. A solo copywriter working from home will need different cover to a landscaping firm operating across multiple sites.
Assessing Your Risks
To understand what you need, consider questions like these:
- Do you work with the public or visit client premises?
- Do you employ staff?
- Do you provide advice or services?
- Do you use tools, equipment, or vehicles?
- How would your business cope with unexpected downtime?
This kind of risk assessment is a helpful starting point before choosing cover levels and limits.
Industry-Specific Requirements
Some industries have additional insurance expectations:
- Construction contractors may require Contract Works or higher Public Liability limits
- IT consultants may need Professional Indemnity to comply with client contracts
- Retailers may want to add Business Contents Insurance to protect stock and equipment
Helpful links (for further reading):
How Much Does Small Business Insurance Cost?
There’s no fixed price. Costs vary depending on what your business does, how many people you employ, and the types of cover you choose.
Common Factors That Affect the Price
- Type of work or trade
- Number of employees
- Turnover and business size
- Claims history
- Tools, equipment or vehicles used
- Where you work (e.g., high-risk or hazardous environments)
Examples
- A sole trader working in IT consultancy might pay around £6–£10 per month for basic Professional Indemnity.
- A tradesperson with employees and tools may pay more for Public Liability, Employers’ Liability and Tools Insurance combined.
Premiums are often more affordable than expected and can be tailored to fit the size and complexity of your business.
Getting Insurance in Place
Business insurance can feel complex, especially if you're just starting out. But getting the right protection doesn’t have to be difficult.
A good approach is to:
- Start with the legally required policies
- Add cover based on how and where you work
- Check if clients, landlords or suppliers require specific cover
- Review your policies annually or when your business changes
Final Thoughts
Insurance plays a quiet but essential role in running a sustainable business. Whether you’re managing people, using specialist tools, or providing professional advice, having the right protection in place helps you focus on what matters most, doing your job well.
For small businesses, the goal isn’t to be overinsured. It’s to be informed and adequately protected.
