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A Guide to Essential Commercial Insurance Policies for UK Businesses

Operating a successful business in the UK involves identifying and managing a variety of risks. One key element of risk mitigation for companies is having proper commercial insurance coverage in place. Beyond any legally required policies, there are a number of additional commercial insurance options businesses should consider to fully protect against potential losses.
 
This guide will provide an overview of key commercial insurance policies that are relevant in the UK market and important for many companies to consider as part of their overall risk management strategy.

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.

The Different Types Of Commercial Insurance

Employer’s Liability Insurance

Employer’s liability insurance is mandatory in the UK for essentially all companies with staff. It provides protection if an employee suffers an injury or illness due to negligence on behalf of the employer.

Policies must provide minimum coverage of £5 million and cover costs such as:

  • Medical expenses from the work-related injury/illness
  • Rehabilitation services
  • Lost income from time off work
  • Legal fees if the employee sues the company

Even employers careful about workplace safety need this coverage given the risks of employee accidents or unprevented occupational hazards.

Public Liability Insurance

Public liability insurance covers legal costs, settlements and damages if a third party is injured or their property damaged as a result of company operations. It protects against claims from customers, vendors, or other members of the public.

Retail stores, restaurants, manufacturers, contractors, and professional service firms all need public liability to manage risks like:

  • Customer slips and falls on premises
  • Injury from defective products
  • Damage to vendor or supplier property
  • Harm resulting from poor advice or professional errors

Typical policies provide £1-5 million in coverage, which can be increased based on specific risk profiles.

Professional Indemnity Insurance

For companies and contractors providing professional services like consulting, accounting, project management and technology services, professional indemnity coverage is essential. This insures against claims made by clients resulting from poor or negligent work.

Common risks include:

  • Breach of contract leading to client losses
  • Missed project deadlines or cost overruns
  • Mistakes resulting in low quality deliverables
  • Failure to detect issues or risks
  • Breaches of confidentiality or privacy

Beyond financial losses from claims, this insurance covers defense costs against allegations and legal liabilities. Policies from £250,000 up to £10 million are available.

Commercial Property Insurance

For small and mid-sized companies that lease or own their business premises, commercial property insurance is vital for protecting those physical assets. It commonly combines multiple key coverages:

  • Building insurance covering damage to premises
  • Contents insurance for business furniture, machinery, stock, IT equipment, etc.
  • Business interruption insurance replacing income lost from disruptions
  • Glass insurance for windows
  • Theft insurance for inventory/contents

Additional cover like machinery breakdown insurance can also be added based on specific needs.

Cyber Insurance

In today’s digital economy, companies of all sizes need cyber insurance to manage risks like data breaches, hacking, malware attacks and electronic fraud. Policies can include:

  • Security breach costs for investigation, notifications, credit monitoring services, public relations crisis management, and potential regulatory penalties
  • Cyber extortion coverage for threats against systems or data
  • Business interruption coverage for income losses from network disruptions
  • Cyber theft losses from fraudulent transfer of funds
  • Costs to restore lost or corrupted data from attacks
  • Legal defence against lawsuits brought by consumers or contracting partners

Premiums range from £500/year for micro-businesses to tens of thousands for large enterprises.

Directors & Officers Insurance

Directors and officers personally carry risks related to their professional decisions and actions. D&O insurance protects board directors and senior leadership against claims alleging wrongful acts like misrepresentation, breach of duty, or negligent management. This covers investigation costs, legal defence expenses, settlements and damages awarded.

All private and public companies should require D&O coverage for leaders making business judgements that can still result in liability.

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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Further Reading

Commercial Insurance Key man Insurance UK

5 Reasons You Should Take Out Relevant Life Insurance

Relevant life insurance is a type of life insurance policy that is taken out by businesses on behalf of their employees

Commercial Insurance Key man Insurance UK

Relevant Life Insurance HMRC Tax Treatment (updated) 2022

Relevant life insurance is a form of insurance that provides financial protection for an individual.

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Relevant Life Insurance Calculator

Work out how much money you can save with our relevant life calculator. Our calculator

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