People use the word “need” in very different ways. The straight forward definition is to simply require something because it is essential or very important, but what becomes classified as essential or very important gets distorted in our minds. You might find that you “need” Sky Sports for example. You might “need” a nicer car. Children “need” specific toys on a near-constant basis apparently.
With this in mind, declaring with any certainty that you need or don’t need insurance for your small business can be a little bit on the difficult side. Instead of stating outright that you do, which you can probably imagine is what I’m going to suggest seeing as I’m writing from an insurance broker that specialises in public liability insurance for small businesses, let’s break this question down into more reasonable component parts attacking the question from different angles.
Whether you legally need insurance for your small business is an easy question to answer. If you employ someone, then yes, you will need employers’ liability insurance. This is required by law and being without it can land you an incredibly unpleasant fine.
If you’re on your own however, legally there is nothing that says you must have business insurance, so no, you don’t need something like public liability insurance or professional indemnity cover or anything like that.
Summary: Yes you do and no you don’t.
Insurance works by playing the statistics and basically placing a bet on you not getting hurt or not having any cause to claim a penny. The level of your premium for your business insurance scales with the level of risk an insurance company thinks you will be facing in your day to day trading environment.
Generally speaking, statistically you do not need insurance. There are some professions and trades where those statistics are a little more skewed against you, but at its most basic, you are unlikely to claim on a policy, so if you are a gambling person and fancy your chances at being in the much larger group of people who never need to claim on a policy, then no, you can ignore insurance.
From the way this has been described, I hope you can put two and two together and establish for yourselves why this might not be the best attitude to take and that this approach is all very well until you are person number 10 who gets lumbered with millions in claims to pay out following a public liability lawsuit.
Summary: No. Just some how make sure you’re not one of the minority that needs to claim.
In terms of your outgoing finances, if you run a small business, you never need extra expenses. You need insurance eating into your precious cash reserves as much as you need taxes doing the same, but unlike the taxman, you won’t have an angry broker turning up wielding court-backed threats if you don’t take out insurance.
Even though the cost of insurance will scale with the size of your business, meaning a small business will have much smaller premiums than a larger one, nobody wants to pay out on insurance premiums at all. It’s not fun money to spend.
In an ideal world, no one would ever need insurance because no one would ever have a cause to rely on it. Ideally, you’ll never have cause to face a public liability claim or be interrupted from trading for a long period of time or suffer any damage to your premises whatsoever. There would also be unicorns.
Coming crashing back down to reality, you should know the following:
- Something doesn’t have to be a legal requirement to be a good idea
- You can’t always influence which side of the statistical divide you will fall
- There will always be costs and sometimes spending money to ensure you don’t have to spend more is smart
- We do not live in an ideal world
The final score
In fairness “Do you need business insurance for your small business?” is not a complete question. A small business could mean practically anything. It could range from a high street hairdressers to an elite group of specialist lion tamers, both of which have inherently different risks (no risk of accidentally cutting someone’s ear off as a lion tamer for a start). You might find that your business falls into a category that really can do without insurance, but realistically, there is almost always something that you could benefit from or protect yourself from.
It’s obvious that we are going to say “yes, you do need business insurance for your small business” but even when you put your cynicism for an insurance company suggesting that you buy insurance to one side, you can see that in most cases we are 100% right on the matter
Written by David Hing for YOUR Insurance, a broker specialising in insurance for small businesses, be they hairdressers or lion tamers. (Actually, we probably couldn’t cover lion tamers.)