Insurance

2. Optional Cover

Most business risks can be insured against.

Whether a particular type of cover is right for you will depend on your assessment of the risks and the nature and location of your business.

There are several non-compulsory types of insurance cover you may want to consider.

2.1 Legal liability cover is more or less essential, though not required by law.

• Public liability covers you against accidents to members of the public or damage to property that occurs as a result of your business activities. It also covers any related legal costs.
• Product liability covers you against injury or damage caused by faulty goods. This can be important if you manufacture, repair, install or even retail goods.

2.2 Property cover can be provided for specific risks (eg fire or flood) or, alternatively, for a wide range of risks in one package.

• You should cover your contents, stock and fixtures. If you own your premises, you will need to insure the buildings too.
• Claims for wear and tear and gradual deterioration are generally excluded. If you arrange cover on a 'new for old' basis, deductions for wear and tear will not be made from claims for risks which are insured, such as fire or theft.
• Most policies automatically insure you for up to £100,000 against terrorist attack. You will need to arrange extra insurance if your property and possessions exceed this replacement cost.
• If you rent premises, ask to see the landlord's insurance policy and check the range of protection that is in place.

2.3 Cover against theft by outsiders may be something you could leave for later, if your business does not involve expensive equipment or stock.

• Insurers generally want to see a reasonable minimum standard of security.
• Theft by employees is generally not covered, though this can be arranged through a separate 'fidelity' policy.

2.4 Professional indemnity cover protects you against your legal liability for losses suffered by your customers as a result of your negligent advice.

• This insurance is legally required in certain professions, such as the law, accountancy and financial services.
• It is common in other areas, such as management and computer consultancy, publishing, engineering and design.

2.5 Business interruption insurance compensates you for extra costs incurred and trading profits lost if your business suffers serious disruption after, say, a fire.

This is also known as 'consequential loss' insurance.

• For example, a manufacturer might have to stop trading for six months while premises were rebuilt and re-equipped.
• A travel agency that lost all its customer files and bookings might lose three months' sales as a consequence.

2.6 Legal expenses insurance covers legal costs such as solicitors' fees and court costs.

• Many policies offer legal guidance via a telephone helpline.

2.7 You can use insurance to make your business less vulnerable to the illness or death of key employees. Small businesses are often dependent on one or two key members of staff.

• 'Key man' insurance pays out in the event of the death of a nominated employee.
• Income protection insurance schemes can be used to cover employees in the event of long-term sickness, paying their salaries during the period of incapacity. This relieves the business of the burden of paying for a sick employee.

2.8 Other, more specialised, insurance policies are available to provide cover for particular business situations.

• Money policies cover you for loss of cash or cheques. Shops that hold large amounts of cash will need specially agreed limits.
• 'Goods in transit' cover may be important if your products spend a long time in delivery vans or are especially vulnerable. Hauliers' terms of trade usually place strict (and low) limits on the compensation they will pay.
• Glass cover may be necessary for shop windows or any other fixed glass.
• Different types of engineering policy are available for machinery, sometimes including both breakdown and statutory inspection cover. You may need to check that equipment that is used off-site is included.
• Credit insurance can compensate for debtors who are unable to pay you.
• Computer policies may cover you for breakdowns and for loss of information.
• Private health policies may cover the costs of private medical treatment or pay a lump sum in the event of a 'critical illness'.