A Guide to Essential Commercial Insurance Policies for UK Businesses
What Is The Definition Of Commercial Insurance?
A commercial insurance policy is an insurance cover that protects businesses from losses associated with the risks of operating. It is insurance purchased by companies rather than individuals or families.
Some key things to know about commercial insurance:
- It covers losses relating to a business’s assets, earnings, and liability risks. Personal insurance like health, life, or homeowners insurance covers individual needs rather than business risks.
- Policies are available to safeguard against a wide variety of exposures like property damage, employee injuries, lawsuits, cyber incidents, natural disasters, and loss of income or revenue.
- Commercial insurance is typically purchased by corporations, partnerships, limited liability companies, nonprofit organizations, and other formal business structures. Sole proprietors and freelancers can also buy business-focused policies.
- Coverage is often broader and with higher limits compared to personal insurance since business operations have elevated risks and a greater need for protection.
- Policies are offered on both admitted and non-admitted basis, giving flexibility. Admitted means the policy is pre-filed and approved by regulators. Non-admitted does not require pre-approval.
- Costs are tax deductible as ordinary business expenses which makes insurance more affordable for companies.
Commercial Insurance FAQ
Here are some of the main legally required insurance policies for businesses in the UK:
- Employer’s Liability Insurance – Nearly all companies with employees must have this to cover workplace injuries and illnesses. Minimum £5 million in coverage.
- Motor Insurance – If company cars, vans, trucks or other vehicles are used for the business, motor insurance is legally required. Must cover third-party liability.
- Professional Indemnity Insurance – Required in certain professions like accounting, financial services, law, architecture, etc. Covers negligence.
- Public Liability Insurance – Not an outright legal requirement but effectively mandatory for any business open to the public or clients on their premises.
- Travel Insurance – Companies are required to get travel insurance for employees who travel abroad for work. Covers medical costs, lost luggage, cancellations, etc.
- Trade Credit Insurance – Legally required for certain industries when selling products/services on credit terms. Covers unpaid invoices.
- Energy Performance Certificates – Businesses leasing or selling properties must obtain this rating on energy efficiency by law.
- Product Liability Insurance – Not mandated but critical for manufacturers, retailers and dealers to cover injuries or damage from defective products.
- Cyber Liability Insurance – No legal requirement but essentially a necessity for any company handling customer data or online transactions.
Yes, commercial insurance premiums are typically tax deductible expenses in the UK. Some key things businesses should know:
- Premiums for most standard commercial insurance policies like property, liability, vehicle, and workers’ compensation can be deducted.
- The tax deduction is claimed under general business expenses or operating costs.
- There is no cap on the amount of commercial insurance premiums that can be deducted each year.
- The deduction can be taken by both incorporated businesses like limited companies and unincorporated sole proprietors/partnerships.
- However, the way the deduction is handled may vary. Companies deduct it as a business expense reducing taxable income. Sole proprietors deduct it from total revenues on their individual tax returns.
- The premiums must be for policies that provide necessary protection related to business activities and risks. Personal life or health insurance are not deductible.
- Records, invoices, receipts, and policy documents should be maintained as evidence supporting the deduction.
- The deduction is taken in the same tax year that the premiums are paid. Prepaid premiums are deductible in the year paid.
Consult an accountant or HMRC for specifics on claiming insurance premium deductions for your particular business structure. Taking the write-off can provide useful tax savings.
Here are two other types of insurance companies may consider:
- Key person insurance – Covers the loss of an important employee. The policy death benefit provides funds to withstand losing the key employee’s skills, relationships, expertise, etc. Helps ensure ongoing business operations.
- Relevant life insurance – A type of life insurance for employees or company owners. Used to provide tax-efficient life insurance. Premiums are deductible and death benefits are typically not taxed.
Here are some tips for getting the best deal on commercial insurance in the UK:
- Shop around and get quotes from multiple providers. Compare premiums and cover options.
- Consider using an independent insurance broker who can access many insurers and find you competitive pricing.
- Ask about bundling different policies together for a multi-policy discount.
- Look for providers that offer discounts for good claims history or risk management.
- See if any trade associations or business groups you belong to provide insurance schemes.
- Increase your voluntary excess to lower premiums. But don’t overextend.
- Pay annually rather than monthly to avoid instalment fees.
- Review your policies at renewal and re-market regularly to get quotes.
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