Business insurance falls into three groups: cover the law requires, cover the people you work with require, and cover that's your call. For most small UK businesses, the law only requires employers' liability once you take on staff, plus business use on your motor policy if you drive for work. Beyond that, the covers that matter most are public liability if you deal with the public, professional indemnity if you're paid for advice or expertise, and cover for the equipment or stock your business can't run without.
Most guides to business insurance are written by insurers, brokers and comparison sites, and they make every policy sound essential. We don't sell insurance, so for every type of cover this guide tells you who usually needs it and who can usually skip it. Most first-time owners end up with two or three covers, often bundled into a single policy.
1. The lay of the land in two minutes
Every type of cover sits in one of three groups, and the group tells you how much choice you really have.
| Group | What it means |
|---|---|
| Required by law | You can be fined without it. For most small businesses, that's only employers' liability once you employ someone, and motor cover for the way you use your vehicle. |
| Required by someone you work with | A condition of something you need: your professional body, a council licence, a client contract, a trade scheme or your lease. Skip it and you lose the membership, the licence or the contract. |
| Your call | Genuinely optional. The question is whether the risk would hurt your business more than the premium does. This is where most of the selling happens. |
Most covers start in the third group and move into the second as soon as a client, landlord or professional body asks for them. So before buying anything, read your contracts, your lease and your professional body's rules.
Five words that make the rest easy
- Premium. What you pay for the policy, yearly or monthly.
- Excess. The part of each claim you pay yourself. With a £250 excess, the insurer pays £750 of a £1,000 claim.
- Limit. The most the insurer will pay. "£1m public liability" means up to £1m per claim.
- Sum insured. What you tell the insurer your equipment, stock or building is worth. Get it wrong and every claim can be cut (section 5).
- Schedule. The page or two listing what you've actually bought: covers, limits, excesses and your business description. It's the page to read.
Source: business.gov.uk, How to get insurance for small businesses · HSE, Employers' liability (compulsory insurance): a brief guide for employers
2. Which covers fit your business
Find the row that sounds most like you, then tap a cover to jump to it in section 3. It's a starting point: your contracts, lease and professional body can add to it.
| If you're… | Look at first | Consider | Usually skip for now |
|---|---|---|---|
| A remote freelancer or consultant | Professional indemnity, equipment, tell your home insurer | Cyber, legal expenses, public liability if a client asks | Employers' liability, business interruption, D&O |
| A tradesperson | Public liability, tools, business use on your van | Professional indemnity if you design or inspect | Business interruption, D&O |
| Selling products online or at markets | Product and public liability, stock, tell your home insurer | Goods in transit, cyber | Professional indemnity, employers' liability |
| Running a shop, café, salon or studio | Public liability, contents and stock, business interruption, buildings if your lease says so | Cyber, legal expenses | D&O |
| Hiring your first employee | Employers' liability, from their first day | Legal expenses | |
| A company with investors or several directors | Everything relevant above | D&O, key person |
Two worked examples
Priya is a freelance IT contractor working through her own limited company, which she owns outright. She works from home, and her new client's contract asks for £1m of professional indemnity.
- Needs: professional indemnity (because of the contract, not the law), and cover for her laptop, either declared on her home policy or as business equipment cover.
- Can skip for now: employers' liability (she's the only employee and owns all the shares, so the company is exempt), public liability unless a client asks, D&O and business interruption.
Sam and Alex run a small limited company together. They own half each and both take a salary through payroll.
- Needs: employers' liability. Many two-person companies assume they're exempt. They aren't: the exemption only applies when the company has a single employee (see the employers' liability card in section 3).
3. Every type of cover, in plain English
Grouped by how likely a small business is to need each one. Tap a cover to see an example, who needs it, who can skip it, and whether it's required.
Most first-time owners look at these
Public liabilityOften required by others
Pays if your business injures a member of the public or a client,
or damages their property.
- For example
- A customer trips over your cable at a market stall. You crack a client's worktop while fitting a shelf.
- Usually need it
- Anyone who visits clients, has people visit them, or trades in public: tradespeople, cleaners, stallholders, shops, events.
- Can usually skip
- Fully remote desk work with no visitors, though clients, venues and councils may still ask for it.
- Required?
- Not by law for almost all businesses. Often required by councils (street trading licences commonly ask for £5m), venues, trade schemes and client contracts.
Professional indemnityOften required by others
Pays if a client says your advice, design or work was wrong and
cost them money, including your legal defence.
- For example
- A bug in your code takes a client's online shop down for a weekend.
- Usually need it
- Anyone paid for advice or expertise: consultants, IT contractors, designers, marketers, bookkeepers.
- Can usually skip
- Selling goods, or manual work with no advice or design element.
- Required?
- Not by law. Required by many professional bodies (see the end of this section) and often written into client contracts. It works differently from other covers: see section 5.
Employers' liabilityRequired by law
Pays if someone who works for you is injured or made ill by their
work.
- For example
- An employee hurts their back lifting stock.
- Usually need it
- Anyone who employs anyone, including part-time staff, temps and apprentices. Someone who invoices you can still count as your employee if you control where, when and how they work.
- Required?
- Yes, from your first hire, in England, Wales and Scotland (Northern Ireland has its own rules). You need at least £5m of cover (most insurers offer £10m) and a certificate your staff can see, online if you like. Fines run up to £2,500 for every day you're not insured.
- The exemption
- A limited company is exempt only if it has one employee who owns at least 50% of the shares. It stops applying when a second director goes on the payroll, you hire anyone, or investors take you below 50%. The family exemption doesn't help: HSE is clear it doesn't apply to limited companies. GOV.UK's employers' liability page lists the family exemption without saying so, and doesn't mention the one-owner exemption at all.
Business equipmentYour call
Pays to repair or replace your kit if it's stolen, lost or
damaged, including away from your premises if you add portable
cover.
- For example
- Your laptop is stolen from a café.
- Usually need it
- Anyone whose work stops without their equipment.
- Can usually skip
- If you have one laptop and your home insurance already covers it for business use (check, don't assume).
Motor: business useRequired by law
Your car or van policy must cover the way you use the vehicle for
work. It's usually an option on a normal policy.
- Usually need it
- Anyone who drives for the business beyond their commute: to clients, between sites, or delivering orders.
- Required?
- Yes. Driving without cover for the use you're making of a vehicle is an offence: at the time of writing, a £300 fixed penalty and 6 points, or an unlimited fine and possible disqualification in court.
- Watch out for
- A "social, domestic and pleasure" policy may not pay in full if you're driving for work. In one ombudsman case, a van driver on that kind of policy crashed while commuting, and his payout was cut in proportion to the extra premium he should have paid.
Your home insuranceTell your insurer
Not a new policy: a check on the one you already have, if you work
from home.
- Why it matters
- Home policies can exclude business equipment, usually don't cover business stock, and generally don't cover business visitors. If your insurer doesn't know you work from home, a claim can be cut or refused.
- What to do
- Tell them. A home office is often covered for little or nothing extra. Storing stock or seeing clients at home usually needs proper business cover.
Depends on your business
Product liabilityYour call
Pays if a product you make, sell, repair or import injures someone
or damages their property. Usually bundled with public liability.
- Usually need it
- Makers, shops, online sellers and importers.
- Watch out for
- Often one yearly limit rather than per claim. Sales to the US or Canada are often excluded.
Stock and contentsYour call
Pays for goods you hold to sell, and the contents of your
premises, if they're stolen or damaged.
- Usually need it
- Shops, makers and online sellers.
- Watch out for
- Make sure the sum insured covers seasonal peaks, not just a quiet month.
ToolsYour call
Pays for stolen or damaged tools, on site, in the van or at home.
- Usually need it
- Tradespeople.
- Watch out for
- Tools left in a van overnight are often excluded or limited. Keep receipts.
Goods in transitYour call
Pays if goods are damaged or stolen while they're being moved.
- Usually need it
- Businesses that deliver their own goods.
- Watch out for
- Exclusions for unattended vehicles, and limits per load.
CyberYour call
Pays the costs after a hack, data breach or outage: getting back
up and running, notifying customers, lost income and claims.
- Usually need it
- Anyone holding customer data, taking payments online, or unable to trade without email and systems.
- Watch out for
- Fake-invoice and payment-redirection fraud is often excluded or capped.
- Honest take
- In the government's latest survey, 43% of businesses had a breach or attack in a year, and among those the typical cost of the worst one was £0. Cyber cover is for the rare bad one.
Business interruptionYour call
Pays lost profit and extra costs while you can't trade after
damage such as a fire or flood.
- Usually need it
- Businesses that depend on their premises: shops, cafés, salons, workshops.
- Watch out for
- Most policies need physical damage first. Choose an indemnity period (how long it pays for) long enough to rebuild. Twelve months is common.
BuildingsOften required by others
Pays to repair or rebuild your premises.
- Usually need it
- Owners, and tenants whose lease makes them insure (many landlords insure and recharge you instead).
- Watch out for
- Insure the rebuild cost, not the market value.
Legal expensesYour call
Pays legal costs for disputes such as employment tribunals,
contract disputes and tax investigations. Often a cheap add-on.
- Usually need it
- Anyone who wants cheap protection against a legal bill, especially once you employ people.
- Watch out for
- Claims need "reasonable prospects of success", and disputes that started before the policy aren't covered.
Usually later, as you grow
Directors' and officers' (D&O)Your call
Covers directors personally against claims about how they ran the
company. Often sold as "management liability".
- Becomes relevant
- When you have investors, employees, significant supplier credit or a regulated activity.
- Honest take
- Weak value for a one-person company you own outright.
Key personYour call
Pays the business if someone it depends on dies or becomes
seriously ill.
- Becomes relevant
- When loans, investors or staff depend on one person.
- Honest take
- Rarely right for a solo business. If the key person owns the company, tax relief on the premium isn't guaranteed, so get advice first.
Trade creditYour call
Pays if a customer can't pay your invoice because they've gone
bust.
- Becomes relevant
- When you sell to other businesses and a few customers owe you a lot.
- Honest take
- Rarely worth it with many small customers.
Does your profession or licence require cover?
Common requirementsRequired by others
Most "compulsory" insurance actually comes from here. A few common
examples.
- Accountants and tax advisers in practice need professional indemnity as a condition of membership of their body (ICAEW, ACCA, AAT, CIOT, ATT). A bookkeeper supervised only by HMRC for money laundering has no insurance requirement.
- Solicitors' firms need at least £2m of professional indemnity, or £3m for companies and LLPs.
- Health professionals need "appropriate" indemnity cover, through a policy or a defence organisation. An employer's cover often satisfies this. Osteopaths and chiropractors need at least £5m in total for the year.
- Surveyors and architects have professional indemnity minimums from RICS and ARB, starting at £250k.
- Letting agents in England that hold client money must join a protection scheme, and those schemes require professional indemnity.
- Childminders registered with Ofsted need appropriate insurance, such as public liability.
- Commercial drone operators need third-party insurance, whatever the drone's weight.
- Council licences for street trading and some beauty or tattoo work often require public liability. Each council sets its own amount.
You'll also be offered income protection, life cover and private medical insurance. These protect you, not the business. For the self-employed, with no employer sick pay, income protection is often the most valuable policy of all.
Source: business.gov.uk, Insuring your business · Employers' Liability (Compulsory Insurance) Act 1969 · One-owner exemption (SI 2004/2882) · HSE40 · GOV.UK, Employers' liability insurance · GOV.UK, Driving without insurance · Ombudsman decision DRN-4981707 · DSIT, Cyber security breaches survey 2025/26 · ICAEW PII · SRA Indemnity Insurance Rules · CAA, Drone insurance
4. What it should cost, and how it's taxed
The best recent data comes from a survey of 1,002 UK small and medium-sized businesses commissioned by the Association of British Insurers and published in January 2026. Typical total spend on all business insurance:
| Business size | Typical yearly spend (median) |
|---|---|
| Sole trader | £250–£499 (nearly half spend under £250) |
| 1–9 employees | £1,000–£1,999 |
| 10–49 employees | £3,000–£4,999 |
What headline prices actually mean
"From £5 a month" is everywhere. Read the small print: it's often the price only the cheapest 10% of customers paid, usually at the lowest limit, and each seller works it out differently. Simply Business, for example, says 10% of its public liability customers paid the equivalent of £5.40 a month in the first half of 2026, and its example quote for IT contractors at the headline price is for £50,000 of professional indemnity.
As a rough guide, from prices insurers publish (checked September 2026):
- Public liability, £1m, low-risk trade: around £60–£150 a year. Going up to £5m usually adds tens of pounds, not multiples.
- Professional indemnity, low-risk consulting: Hiscox says £250k "could cost £400" and £1m "could cost £600".
- Employers' liability, added to public liability, office-based firm with a few staff: around £80–£300 a year extra. Trades pay considerably more.
- Cyber, micro business, £50k–£250k of cover: around £60–£400 a year.
Our rough guide, not quotes. Your trade, turnover, staff, claims history and chosen limit move the price more than anything else.
How it's taxed
Business insurance premiums are an allowable business expense for sole traders and limited companies, including the Insurance Premium Tax. Four details catch people out:
- Vehicle insurance and the mileage rate. If you're a sole trader using the flat mileage rate (55p a mile for the first 10,000 miles in 2026/27), that rate already includes insurance, so you can't claim it on top.
- Home insurance. If you're a sole trader and part of your home is used only for work, you can claim that share of your home insurance, even if you also use the flat rate for working from home.
- Your own income protection or life cover as a sole trader. Not a business expense, but income protection payouts are generally tax-free.
- Private medical insurance paid by your company is a taxable benefit for you, and the company pays 15% employer's National Insurance on it.
Source: ABI and Public First, Small Business, Big Risk (January 2026) · Simply Business, public liability · IT contractors · Hiscox, professional indemnity cost · GOV.UK, Insurance Premium Tax · VAT Notice 701/36 · FCA, premium finance market study (2026) · GOV.UK, Expenses if you're self-employed · HMRC BIM75005 · BIM75010 · BIM47820 · BIM45560
5. Buying without getting caught out
Tell the insurer everything relevant, even if they don't ask
When you buy business cover, even as a sole trader, you're not treated as a consumer. The Insurance Act 2015 expects you to volunteer anything that would affect the insurer's decision: past claims, risky work like working at height, sales abroad, stock kept at home. What your broker knows and tells the insurer on your behalf counts too.
An honest mistake no longer automatically voids your policy. The insurer does what it would have done if it had known: add the exclusion it would have added, or, if it would have charged more, pay the same proportion of the claim. Only if it would have refused you outright can it cancel the policy, and then it must refund your premium.
You paid £800. With the full picture, the insurer would have charged £1,000. On a £10,000 claim, it pays 80%: £8,000.
Put a realistic value on what you insure
If you insure equipment, stock or a building for less than it's worth, many policies cut every claim by the same proportion through an "average" clause. The Financial Ombudsman's example: insure £500,000 of property for £300,000 and the insurer pays 60% of any claim. The ABI's 2026 report describes a shop whose £400,000 of contents was insured for £200,000. After a £170,000 fire, it received £95,000.
Know how professional indemnity works
Most covers pay for incidents that happened while you were insured. Professional indemnity pays claims made while the policy is live. So:
- Don't let it lapse between contracts. A claim about past work, made after your policy has lapsed, isn't covered.
- When you stop trading, buy run-off cover for claims that arrive later, typically for up to six years. If you're closing a limited company, arrange it before the company is closed.
- Read the contract clause. "£1m each and every claim" means the full limit for every claim. "In the aggregate" means one pot for the year. And "for six years after the contract ends" is a promise to keep your cover running.
Check who you're dealing with
- Check the insurer or broker is on the FCA register, and that your schedule describes everything your business does.
- You can ask a broker what commission they earn, and they must tell you.
- There's no automatic 14-day cooling-off period for business policies. That right is for consumers.
If a claim goes wrong
Complain to the insurer first. If you're not happy with its final response, or you haven't had one after 8 weeks, most small businesses can take it to the Financial Ombudsman Service for free, within 6 months of the final response. It can award up to £455,000 (for events since April 2019). In 2025/26 it upheld 39% of commercial property complaints and 44% of commercial vehicle complaints, against 30% across all complaints.
Source: Insurance Act 2015, s3 · Schedule 1 · Financial Ombudsman, underinsurance · Financial Ombudsman, who we can help · Complaints data 2025/26 · FCA ICOBS 4.4
6. Your checklist
Before you start trading
- List what's already required of you by your contracts, lease, licences and professional body.
- Use the finder in section 2 to add anything you'd want anyway.
- Tell your home insurer if you work from home, and add business use to your vehicle policy if you drive for work.
- Get two or three quotes for the same covers and limits, from a comparison site, an insurer or a broker (BIBA's "Find a broker" lists regulated brokers).
The day you hire someone
- Employers' liability in place before their first day, and the certificate displayed or shared.
At every renewal
- What changed this year? Turnover, staff, services, selling online or abroad. About half of small businesses say they haven't reviewed their cover in over a year.
- Are the values still right for equipment, stock and rebuild costs?
- Get a comparison quote. The FCA rules that stop insurers charging loyal customers more at renewal only cover home and car insurance for consumers, not business policies.
Before you close a company or stop trading
- Arrange professional indemnity run-off before the company is closed.
- Keep old employers' liability certificates. It's no longer a legal requirement, but work-related illnesses can surface decades later. Policies since April 2011 are on a central tracing register; for older cover, your certificates may be the only proof of who insured you.