Types of business insurance: what cover do you need?

Published Thursday 12 March 2026

Table of contents

• Why you need business insurance
• What types of business insurance are required by law?
• Main types of business insurance at a glance
• Types of business insurance explained
• Getting started with business insurance
• Reviewing your business insurance
• FAQs on business insurance

Key takeaways

• Prioritise employers' liability insurance if you have any employees, as it's legally required in the UK with minimum £5 million cover and you can face fines of £2,500 per day without it.
• Assess your specific business risks by listing what could go wrong, checking legal requirements, and consulting similar businesses or your accountant to determine which combination of the eight main insurance types you actually need.
• Review your insurance coverage annually and whenever your business changes significantly, such as hiring staff, moving premises, buying expensive equipment, or adding new services that could introduce different risks.
• Understand that public liability and professional indemnity insurance, while not legally required, are often essential for winning contracts and protecting your business from costly compensation claims.

Why you need business insurance

Business insurance shields your company from costs that could otherwise threaten its survival. With the right cover, your business is protected from lawsuits, accidents, or disasters that could otherwise drain your savings.

The right policies help you:

• Protect against financial loss: Covers legal fees, compensation claims, and repair costs that would otherwise come from your pocket.
• Meet legal requirements: Comply with UK law, which requires certain types of insurance if you employ staff or use vehicles.
• Secure contracts and premises: Satisfy landlords, clients, and suppliers who often require proof of insurance before working with you.
• Maintain business continuity: Keep trading after setbacks like fire, theft, or equipment failure.

Most small businesses need at least two or three types of cover. The right combination depends on your industry, staff numbers, and how you operate.

What types of business insurance are required by law?

Employers' liability insurance is the only type of business insurance required by UK law for most businesses. You must have it if you employ one or more people, including part-time, temporary, or casual workers.

The legal requirements are:

• Employers' liability: According to UK law, you must have a policy to cover you for at least £5 million (most policies offer £10 million). You can be fined £2,500 for every day you operate without it.
• Motor insurance: Required if you use any vehicle for business purposes, even your personal car for work trips.

Most other types of business insurance are optional but strongly recommended. Public liability, professional indemnity, and property insurance are not legally required, yet many businesses need them to win contracts, rent premises, or protect their assets.

Main types of business insurance at a glance

Here are the eight main types of business insurance and what each one covers:

• Property insurance: Covers buildings, equipment, and stock against theft, fire, and some natural disasters.
• Vehicle insurance: Protects business vehicles and covers accident damage, theft, and third-party claims.
• Public liability insurance: Pays compensation if your business injures someone or damages their property.
• Employers' liability insurance: Covers claims from employees who are injured or become ill because of their work.
• Professional liability insurance: Protects against claims of negligence, mistakes, or bad advice in your professional services.
• Business interruption insurance: Replaces lost income and covers costs if your business cannot trade due to an insured event.
• Key person insurance: Provides funds if a crucial employee dies or cannot work due to serious illness.
• Shareholder protection insurance: Gives surviving business partners money to buy back shares from a deceased partner's estate.

Types of business insurance explained

Different businesses need different combinations of cover. The policies below represent the main types available to UK businesses. Review each one to identify which apply to your situation.

Property insurance

Property insurance covers your business premises and everything inside them against damage or loss. It works much like home insurance but is designed for commercial use.

This type of cover typically protects against:

• Fire and smoke damage: Covers repairs or replacement costs for buildings and contents.
• Theft and vandalism: Covers losses from break-ins or malicious damage.
• Storm and flood damage: Covers repairs needed after severe weather (check policy exclusions carefully).
• Equipment breakdown: Covers replacement costs for essential machinery and tools.

Property insurance is popular because many small businesses keep all their assets in one location. A single fire or flood could wipe out everything without adequate cover.

Vehicle insurance

Vehicle insurance for business covers company cars, vans, and other vehicles used for work purposes. It's a legal requirement if you use any vehicle for business, including your personal car for work journeys.

Business vehicle insurance typically covers:

• Accident damage: Covers repairs or replacement after collisions.
• Theft: Covers replacement costs if a vehicle is stolen.
• Third-party claims: Covers compensation for injuries or damage you cause to others.
• Legal costs: Covers defence against lawsuits from other road users.

Standard personal car insurance typically covers only personal use. Check your policy and upgrade to business cover if you drive for work, make deliveries, or transport goods.

Public liability insurance

Public liability insurance covers compensation claims if your business injures a member of the public or damages their property. It's not legally required, but many landlords and clients insist on it before working with you.

This policy pays out when your business activities cause:

• Personal injury: For example, a customer slips on your wet floor or a visitor trips over equipment.
• Property damage: For example, your work damages a client's home or belongings.
• Legal defence costs: Covers solicitor fees to fight claims, even if they're unfounded.
• Punitive damages: Covers additional amounts a court orders you to pay beyond basic compensation.

Public liability covers members of the public only, not your employees. If you have staff, you need separate employers' liability insurance to protect against workplace injury claims.

Employers' liability insurance

Employers' liability insurance is a legal requirement if you have employees in the UK. It covers compensation claims from staff who are injured or become ill because of their work.

Key requirements include:

• Minimum cover: Must be at least £5 million, though most policies offer £10 million.
• Who counts as an employee: Includes full-time, part-time, temporary, and casual workers.
• Penalties for non-compliance: Include fines of up to £2,500 for every day you operate without valid insurance.
• Display requirements: You must display your certificate where employees can see it or make it available electronically; failure to do so can result in being fined £1,000.

This insurance works alongside good health and safety practices. You're still required to make your workplace as safe as possible and follow all relevant regulations.

Professional liability insurance

Professional liability insurance (also called professional indemnity insurance) covers claims against your business for mistakes, negligence, or bad advice in your professional services. It pays for legal defence and compensation if a client suffers financial loss because of your work.

This cover is essential if you:

• Give advice: Such as accountants, consultants, architects, and financial advisers.
• Provide professional services: Such as solicitors, surveyors, engineers, and IT professionals.
• Design or specify products: Where your recommendations could cause client losses.

Some professions require professional indemnity insurance by law or as a condition of membership to professional bodies. For example, policies for accountants regulated by the Institute of Chartered Accountants in England and Wales (ICAEW) must include at least six years' retroactive cover for previous work.

Even where it's optional, many clients require proof of cover before signing contracts.

Business interruption insurance

Business interruption insurance replaces lost income when your business cannot trade due to an insured event. It covers the revenue you would have earned, plus ongoing costs you still need to pay while closed.

This cover typically pays for:

• Lost profits: Covers the income you would have made during the closure period.
• Fixed costs: Covers rent, loan repayments, and salaries that continue even when you cannot trade.
• Temporary relocation: Covers costs of moving to alternative premises while yours are repaired.
• Recovery expenses: Covers extra spending needed to get back to normal trading capacity.

Business interruption insurance usually requires a separate property insurance policy. It only pays out when the interruption results from an event covered by your property insurance, such as fire, flood, or theft.

Key person insurance

Key person insurance provides a cash payment if a crucial employee dies or cannot work due to serious illness or injury. The payout helps your business survive the disruption of losing someone essential to operations.

You can use the funds to:

• Hire temporary cover: Pay for freelancers or contractors while you recruit a replacement.
• Recruit and train: Cover the costs of finding and onboarding a permanent replacement.
• Offset lost revenue: Replace income lost while the business adjusts to the absence.
• Repay debts: Meet loan obligations that depended on the key person's contribution.

This cover is particularly valuable for businesses that rely heavily on one or two people, such as a founder with key client relationships or a specialist with unique technical skills.

Shareholder protection insurance

Shareholder protection insurance provides funds to buy a deceased business partner's shares from their estate. It prevents ownership disputes and keeps control of the company with the surviving partners.

This cover benefits everyone involved:

• Surviving partners: Receive funds to purchase the shares and maintain control of the business.
• Bereaved family: Gets fair value for the shares without having to become involved in running the company.
• The business: Avoids delays and disputes that could disrupt operations or damage client relationships.

Shareholder protection works alongside a legal agreement that sets out how shares will be transferred if a partner dies. Speak to a solicitor about creating a cross-option agreement or buy-sell agreement to ensure the policy works as intended.

Getting started with business insurance

Choosing the right business insurance requires balancing adequate protection against unnecessary costs. Being under-insured leaves you exposed to risks that could close your business. Being over-insured wastes money on cover you don't need.

Follow these steps to find the right balance:

1. List your risks: Identify what could go wrong, from property damage to client disputes to employee injuries.
2. Check legal requirements: Confirm whether you need employers' liability or other mandatory cover.
3. Talk to similar businesses: Ask other business owners in your industry what insurance they carry and why.
4. Consult your accountant: They understand your finances and can advise on appropriate cover levels.
5. Compare multiple quotes: Get quotes from several insurers or use a broker to find competitive rates.
6. Read policy exclusions: Understand what's not covered before you buy.

Take time with this decision. The best policy balances cost with the protection you actually need.

Reviewing your business insurance

Regular insurance reviews ensure your cover keeps pace with your business. Risks and responsibilities change as you grow, and policies that once fit perfectly may leave gaps or include unnecessary extras.

Review your insurance when you:

• Hire employees: You'll need employers' liability insurance as soon as you take on staff.
• Move premises: New locations may have different risks or landlord requirements.
• Buy expensive equipment: Increase property cover to reflect the higher replacement value.
• Change business structure: Moving from sole trader to limited company affects liability and cover needs.
• Win larger contracts: Clients may require higher cover limits or additional policy types.
• Add new services: Different activities may introduce new risks that need cover.

At minimum, review all policies at renewal time each year. Compare quotes from other providers and check that cover limits still match your current situation.

Having the right business insurance protects your finances and gives you confidence to grow. But being insured and being prepared are two different things. Consider creating a business continuity plan to help you navigate difficult events, from natural disasters to the loss of a major client.

While managing policies and payments, clear financial records make insurance claims simpler and renewals smoother. Xero's accounting software helps you track business expenses, manage cash flow, and maintain the organised records that insurers value. Get one month free and take control of your business finances today.

FAQs on business insurance

Here are answers to common questions about business insurance for small businesses in the UK.

Do I need business insurance as a sole trader?

Sole traders are only legally required to have business insurance if they employ staff (requiring employers' liability) or use vehicles for work (requiring business motor insurance). However, public liability and professional indemnity insurance are often essential for winning contracts and protecting personal assets from claims.

Do I need business insurance if I work from home?

Home-based businesses typically need separate business insurance because standard home insurance policies cover only personal, non-commercial activities. Check your home insurance policy for exclusions, and consider public liability cover if clients visit your home or professional indemnity if you provide advice or services.

Do I need business insurance for an online business?

Online businesses may need professional indemnity insurance if they provide advice or services, and public liability cover if they sell physical products. Cyber insurance is increasingly important for businesses that store customer data or process online payments.

How much does business insurance cost?

Business insurance costs vary widely based on your industry, turnover, number of employees, and cover levels. Basic public liability for a low-risk sole trader might cost £50-100 per year, while comprehensive cover for a business with employees could exceed £1,000 annually. Get quotes from multiple providers to compare.

What happens if I don't have required employers' liability insurance?

Employers' liability insurance is a legal requirement in the UK if you have employees. You can be fined up to £2,500 for every day you're uninsured. If an employee is injured and you lack cover, you'll be personally liable for compensation, legal costs, and the fine.