Why do business start-ups need insurance?
Start-ups are, by definition, at a fragile stage of their existence. Without robust income and relying sources of business, there are no safety nets. This is why insurance for start-ups is so essential and should be an afterthought.
Liability claims
Being sued could be an end game for a start-up. A claim could come from a disgruntled customer, a member of the public or an employee. Even a nuisance claim (someone trying it on) can cost you thousands of pounds in legal fees.
Damage or loss to business premises and equipment
Every start-up has some assets. These could be electronic business equipment, premises, stock, tools or office content. Loss or damage could set you back several months or right to the start without insurance protection.
Inability to work
One of the biggest worries for start-ups is losing its key personnel. The impact of falling ill or getting seriously injured could bring the business to a halt or liquidation without the ability to pay for a replacement. Several products can be an actual safety net.
Professional indemnity insurance for business start-ups
Professional indemnity is a legal cover that defends your start-up if it faces a legal claim due to work or advice delivered. Professional indemnity will provide you with legal advice and representation and pay compensation if due.
What does professional indemnity insurance for start-ups cover?
Professional indemnity protects start-up businesses from legal claims accusing them of wrongdoing due to your professional advice or work.
Cover includes:
- Failing your duty of care
- Making a mistake
- Acting negligently
- Giving the wrong advice or recommendation
For example:
- Your client alleges that your work failed to deliver the expected results, and they want their money back
- Your client claims compensation because they believe your work cost them money
- You’re accused of sharing a client's confidential information with an unauthorised party
- You said something wrong or acted in a discriminatory manner
Choosing a professional indemnity limit that’s right
Selecting an appropriate professional indemnity limit for your business is not always obvious; consider the following:
- Think about the complexity of your work and the advice you give—the more complex your work, the higher the limit you might need.
- Think about what downside there might be if your advice goes wrong. How much might it cost to fix a problem?
- Some insurance providers offer as little as £50,000 of cover, which might be tempting as the price will be low. However, with the rising cost of legal services, ask yourself if this amount will go far enough to cover solicitors' fees and possible compensation.
Does professional indemnity insurance cover my start-up business activities worldwide?
Your professional indemnity policy's ‘territory or geographical limits’ and ‘jurisdiction’ sections specify if your start-up business insurance will respond when working in different countries.
Territory or geographical limits:
The territory or geographical limit specifies where you can virtually or physically deliver your services. For example: “Worldwide.”
Jurisdictional limit:
The jurisdictional limit specifies which legal jurisdictions your policy will defend you if you are sued. For example: “Worldwide excluding US and Canada.”
Contract governance:
Any contracts or agreements you enter into with your clients should specify the ‘governing law’ for that contract, which is the jurisdiction in which parties can seek legal remedy for breach of contract.
Avoid entering contracts not governed by your local jurisdiction and/or excluded by your start-up business professional indemnity insurance.
If you work with US and Canadian clients, you can reduce your risk by not entering contracts governed by US and Canadian laws.
Public liability insurance for start-ups
New business start-ups commonly need public liability insurance when their work involves physical contact with clients, customers, the public or third-party property members.
Many start-ups meet clients at their homes, at their clients’ homes or in an office. Face-to-face meetings can expose you to liability claims if a client or a member of public trips or falls.
Other start-ups will be running premises accessible by the public, selling products or dealing with their customers and customers’ property as part of the business. In those scenarios, public liability is essential.
Public liability insurance takes care of instances where an accident happened to a person or their property, and they seek compensation from you.
What does public liability insurance cover?
Public liability provides legal defence and covers a possible payout if you're found liable for property damage or causing an injury.
Cover includes:
- Accidental injury or death
- Accidental property damage
For example:
- A client or customer visits your premises and gets injured
- You can be sued for an injury due to lack of action, such as providing a hazard warning
- If you are in the property trade or profession or have dealings with your customer's property, you could be held liable for damage
Other insurance covers start-up businesses buy
Other covers you might need as a new business start-up depend on your circumstances. Do you need advice on compliance and regulations? Could you have large unpaid invoices? Do you rely on a laptop or expensive computer equipment? Do you employ people? Has your start-up raised finance? Do you rely heavily on key personnel? Do you run premises, own expensive equipment or hold stock?
Commercial legal expenses insurance
Most commercial legal expenses insurance will protect start-ups against various tax and legal issues you may encounter due to your profession, which are not covered by professional indemnity or public liability.
At Suited, we combined £100,000 of commercial legal expenses insurance with helplines and other tools to better assist start-ups in dealing with these issues. We call this Business Legal Protect, and it’s part of your subscription.
Business Legal Protect provides qualified advice and assistance with:
- Legal and tax matters concerning your business
- Criminal prosecution
- Compliance & regulation issues
- Unpaid invoices (over £200)
For example:
- HMRC flags you for tax investigation
- You need legal help chasing a major unpaid invoice
- You need guidance on compliance issues for your business
- You are in a contract dispute with a client or supplier
Electronic business equipment insurance
Most start-ups need some electronics to help them set up. Electronic business equipment insurance covers the cost of replacing or repairing business equipment, such as computers, cameras, or other tools of your trade. Whether this equipment is yours or hired, you can insure the cost of repair or replacement should an accident happen.
Employers’ liability insurance for start-ups
Employers’ liability is a legal cover that offers legal protection if you’re accused by one of your employees of causing them harm at work. The insurance will also pay any compensation if due.
The vital thing to note about employers’ liability insurance is that it is, in certain circumstances, required by law, and you need to understand whether you fall within the defined categories. You could be facing a fine if you’re not compliant.
Do I need employers’ liability insurance as a start-up?
If you consistently work alone, you’re in the clear and don’t have to worry about this cover. However, anyone employing staff, using volunteers and subcontractors should check the government guidelines.
Tools and business equipment insurance
If your start-up relies on expensive equipment, the immediate cost of replacement or repair could be hard to bear. Tools and business equipment insurance can be a helpful way of reducing unforeseen costs.
Key person and income protection insurance
Start-up owners are usually the critical people in the business therefore, assets worthy of protection. Several products exist to lessen the financial burden of an illness, severe injury or death. Speak to a life insurance specialist about your options.
Business outgoings insurance
Some businesses have significant business outgoings. If one of the business owners falls ill and can’t work, keeping up with business expenses might become challenging.
Suited offers Business Owner Protect precisely for this type of scenario.
Cyber cover
If your start-up is going to use online applications, websites and other digital products to carry out your business or manage your customer data, you may wish to consider protection in the event of hacking or cyber attack.
Shopping for start-up insurance
Whether or not you decide to use Suited for your new business venture, it’s worth keeping the following in mind:
Cheap start-up insurance
It's important to keep in mind that when selecting a start-up insurance, price isn't the only factor to consider. It's also crucial to confirm that the provider is accessible and available when you need them. At Suited, we pride ourselves on offering various communication options and quick responses.
Select a fitting business activity description
When shopping for professional covers such as start-up professional indemnity and public liability, ensure you accurately select what you do for a living. Otherwise, you may end up with a product not designed for your profession.
Many providers charge fees to amend or cancel
Low initial prices often hide additional charges to pay monthly, amend or cancel your policy. At Suited, we charge no other fees, and you can cancel anytime with no more to pay.
Some policy wordings are restrictive or have a high excess
Some providers will offer attractive prices, but it is at the expense of cover given. Suited professional indemnity and public liability have £0 excess.
