Types of business insurance

Published Friday 15 May 2026

Table of contents

• Why you need business insurance
• What types of business insurance are required by law?
• Types of business insurance explained
• Getting started with business insurance
• Reviewing your business insurance
• Keep your insurance records organised with Xero
• FAQs on business insurance

Key takeaways

• Business insurance protects your finances, assets, and reputation if something goes wrong, and some types are required by law.
• Employers' liability and motor insurance are the only two types you're legally required to have, but most small businesses benefit from additional cover.
• There are 11 common types of business insurance to consider, including product liability, cyber insurance, and directors' and officers' insurance.
• Reviewing your cover regularly helps you avoid gaps as your business grows or changes direction.

Why you need business insurance

Business insurance is one of the most practical steps you can take to protect your company from unexpected costs. Whether you're a sole trader working from home or running a growing team, the right cover keeps your business finances secure when things don't go to plan.

There are four main reasons to consider business insurance:

• Financial protection. A single claim, accident, or legal dispute could cost thousands. Insurance helps cover those costs so they don't come out of your own pocket.
• Legal requirements. Certain types of insurance are required by law. Operating without them can result in significant fines.
• Securing contracts. Many clients and suppliers won't work with you unless you can show proof of insurance, particularly professional indemnity or public liability cover.
• Business continuity. Insurance supports your ability to keep trading after a disruptive event, from property damage to a key employee being unable to work.

What types of business insurance are required by law?

Two types of business insurance are legally required in the UK, depending on your circumstances.

Employers' liability insurance. If you employ anyone, even a single part-time worker, you must have employers' liability insurance by law. The minimum cover is £5 million, and you need to buy your policy from an authorised insurer. Failing to have a valid policy in place can lead to fines of £2,500 for every day you're uninsured.

Motor insurance. If you or your employees use vehicles for business purposes, those vehicles must be insured for business use. A standard personal motor policy won't cover business journeys.

Types of business insurance explained

Beyond the legal requirements, there are several types of insurance that can protect different parts of your business. The right combination depends on your industry, the size of your team, and the risks you face day to day. Here's what each type covers and who it's best suited for.

Property insurance

Property insurance covers your business premises, equipment, stock, and furniture against damage or loss from events like fire, flooding, or theft. It can also cover the cost of temporarily relocating if your workspace becomes unusable.

Property insurance typically protects against:

• fire, flooding, and storm damage
• theft and vandalism
• accidental damage to equipment or stock
• the cost of temporary premises while repairs are carried out

If you own or lease a workspace, or store valuable equipment or inventory, property insurance is worth considering.

Vehicle insurance

Vehicle insurance covers cars, vans, and other vehicles used for business activities. A standard personal policy won't cover you if you're using your vehicle for work-related travel, deliveries, or transporting goods.

Business vehicle insurance typically covers:

• damage to your vehicle from accidents, fire, or theft
• third-party injury or property damage
• goods in transit, depending on your policy
• legal costs arising from road traffic incidents

If anyone in your business uses a vehicle for work, make sure the policy covers business use specifically.

Public liability insurance

Public liability insurance covers the cost of claims made by members of the public who are injured or whose property is damaged because of your business activities. It's not a legal requirement, but many businesses treat it as essential.

This type of insurance typically covers:

• compensation claims from third parties for injury
• damage to third-party property
• legal fees and court costs
• medical expenses related to the claim

If customers, clients, or members of the public visit your premises or interact with your business in person, public liability insurance is a sensible safeguard.

Employers' liability insurance

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

It typically covers:

• workplace injuries and accidents
• work-related illnesses
• legal and defence costs
• compensation payments ordered by a court

You're required to display your employers' liability certificate where employees can see it, or make it available electronically.

Professional liability insurance

Professional liability insurance, also known as professional indemnity insurance, covers claims made against you for mistakes, negligence, or bad advice in your professional services. It's essential if you provide advice, designs, or specialist services to clients.

This insurance typically covers:

• claims of professional negligence
• errors or omissions in your work
• breach of confidentiality
• loss of documents or data belonging to a client

Certain professions, including those regulated by bodies like the ICAEW, are required to hold professional indemnity insurance.

Business interruption insurance

Business interruption insurance covers lost income and additional expenses if your business can't trade because of an insured event, such as a fire or flood. It's designed to help you stay afloat financially while you recover.

It typically covers:

• lost revenue during the period you can't operate
• ongoing fixed costs like rent and salaries
• the cost of operating from a temporary location
• additional expenses needed to resume trading

Having a business continuity plan alongside this cover helps you respond to disruptions more effectively.

Key person insurance

Key person insurance provides a payout if a person critical to your business dies or becomes seriously ill. The policy is taken out by the business, and the payout goes to the business to cover the financial impact of losing that individual.

It typically covers:

• loss of revenue linked to the key person's role
• costs of recruiting and training a replacement
• repayment of business loans or debts if required
• short-term financial stability while the business adjusts

If your company depends heavily on one or two individuals for revenue, client relationships, or specialist knowledge, key person insurance offers a financial safety net.

Shareholder protection insurance

Shareholder protection insurance provides funds to buy out a deceased or critically ill shareholder's stake in the business. It's typically set up alongside a cross-option agreement between shareholders.

It typically covers:

• the purchase of shares from a departing shareholder's estate
• protection for remaining shareholders against unwanted third-party ownership
• continuity of business control and decision-making

If you run a limited company with multiple shareholders, this type of cover helps keep ownership within the existing team during difficult circumstances.

Product liability insurance

Product liability insurance covers claims made against your business if a product you manufacture, supply, or sell causes injury or damage to a person or their property. Even if you don't manufacture the product yourself, you can still be held liable as a distributor or retailer.

It typically covers:

• compensation for injury caused by a defective product
• damage to property caused by your product
• legal defence costs
• costs related to product recalls

If your business sells, supplies, or manufactures physical products, product liability insurance is a practical safeguard against potentially expensive claims.

Cyber insurance

Cyber insurance covers the costs associated with data breaches, cyber attacks, and IT system failures. With the UK's General Data Protection Regulation (GDPR) framework in place, the financial consequences of a data breach can be significant, making this cover increasingly relevant.

It typically covers:

• costs of responding to a data breach, including notifying affected individuals
• legal fees and regulatory fines related to GDPR compliance
• loss of income caused by IT system downtime
• costs of restoring compromised data and systems
• liability for third-party data losses

If your business stores customer data, processes online payments, or relies on digital systems, cyber insurance helps protect you against a growing area of risk.

Directors' and officers' insurance

Directors' and officers' (D&O) insurance covers the personal liability of company directors and senior officers for decisions they make in their management roles. Directors can be held personally responsible for regulatory breaches, financial mismanagement, or wrongful trading.

It typically covers:

• legal defence costs for claims against individual directors
• compensation payments arising from management decisions
• claims from employees, shareholders, or regulators
• investigation costs from regulatory bodies

If you're a director of a limited company, D&O insurance protects your personal assets from claims that arise from your role. It's particularly relevant if you're considering changing your business structure to a limited company.

Getting started with business insurance

Choosing the right business insurance doesn't have to be complicated. Follow these six steps to find the cover that fits your situation.

1. Assess your risks. List the specific risks your business faces, from property damage and employee injuries to cyber threats and professional negligence. Your industry, location, and business size all affect what you need.
2. Check your legal obligations. Confirm whether you're required to hold employers' liability or any industry-specific insurance. Getting this wrong can lead to fines and legal trouble.
3. Decide on the types of cover you need. Match the risks you've identified to the types of insurance explained above. Most businesses need more than one type of policy.
4. Compare quotes from multiple insurers. Get at least three quotes and compare what's included, not just the price. Pay attention to policy limits, exclusions, and excess amounts.
5. Read the policy documents carefully. Check what's covered, what's excluded, and what conditions you need to meet for a valid claim. Ask your insurer to clarify anything you're unsure about.
6. Set a review date. Your insurance needs will change as your business grows. Set a reminder to review your policies at least once a year, or whenever your circumstances change significantly.

Reviewing your business insurance

Your insurance needs don't stay the same as your business evolves. Regular reviews help you avoid paying for cover you no longer need, or worse, discovering a gap when you need to make a claim.

Consider reviewing your business insurance when:

• you hire new employees or contractors
• you move to a new premises or start working from a different location
• you launch a new product or service
• you start working with larger clients who require specific cover
• your revenue or asset value increases significantly
• your industry regulations change

It's also worth noting that insurance premiums are generally an allowable business expense, which means you can deduct them from your taxable profits. Keeping clear financial records makes it easier to track these expenses and ensures your insurance costs are properly accounted for at tax time.

Clear, well-organised financial records also make the claims process simpler if you ever need to use your insurance. And when it's time to renew, having accurate figures to hand helps you get the right level of cover at a fair price.

Keep your insurance records organised with Xero

Managing business insurance is easier when your financial records are accurate and up to date. Xero's small business accounting tools help you track premiums, manage cash flow, and keep the organised records that insurers value during claims and renewals. Get one month free and take control of your business finances today.

FAQs on business insurance

Here are answers to frequently asked questions about business insurance in the UK.

Do I need business insurance as a sole trader?

You're not legally required to have business insurance as a sole trader unless you employ someone, in which case employers' liability insurance is mandatory. However, cover like public liability or professional indemnity can protect you from costly claims.

Do I need business insurance if I work from home?

Your home insurance policy probably won't cover business-related activities or equipment. If you run a business from home, you should check your home policy and consider separate business cover for stock, equipment, or client visits.

Do I need business insurance for an online business?

Yes, an online business can still face risks like data breaches, professional negligence claims, or product liability issues. Cyber insurance and professional indemnity insurance are especially relevant if you handle customer data or provide services online.

How much does business insurance cost?

Costs vary widely depending on your industry, the types of cover you choose, the size of your business, and your claims history. You can start with a single policy and add cover as your business grows, so it's worth getting tailored quotes.

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

You can be fined £2,500 for every day you don't have valid employers' liability insurance when you're legally required to hold it. You could also face an additional fine of up to £1,000 for not displaying your certificate or failing to make it available to inspectors.

What insurance do I need to start a business?

The insurance you need depends on your business type. At a minimum, consider public liability insurance if you interact with clients or the public, and employers' liability insurance if you plan to hire anyone. Professional indemnity, product liability, and cyber insurance may also be relevant depending on your industry.