Why do limited companies need insurance?
Liability claims from customers, third parties or employees
You may be vulnerable to third-party claims if you run a limited company. Your clients, members of the public, or even your staff could cause your company to face legal action.
Cyber threats, data breaches
With more and more business being conducted online, the risk of cybercrime is also increasing. If sensitive data is leaked or stolen, it can cause significant damage to your company's reputation and finances. Recovering from such an incident can be expensive and challenging without proper insurance.
Damage or loss to your company assets
Your company may suffer financially if your premises or valuable assets are damaged due to unforeseen events such as fires, floods, or theft.
Losing a key member of the business
Additionally, the death or serious illness of a key person in your business could make it difficult to keep operations running smoothly. The right insurance can help mitigate these risks and protect your company's future.
What is limited company liability insurance?
Limited company liability insurance is an umbrella term for several legal liability products, such as public liability, professional indemnity, and commercial legal expenses insurance.
This type of insurance protects you as a director from any legal claims arising from your work. It's vital to assess your needs and determine if you require multiple liability insurance covers.
Limited company public liability insurance
As a limited company, it's important to have public liability insurance to protect against potential accidents, injuries, and property damage.
If your company has frequent in-person interactions with clients, whether in a rented space or at home, there is a risk of being liable for any unfortunate incidents that may occur.
What does public liability insurance for ltd company cover?
Suppose your company is faced with a claim for accidental injury, property damage, or loss. In that case, you can rely on public liability insurance for legal defence and compensation if deemed liable.
Cover includes:
- accidental injury or death
- accidental property damage
For example:
- A hairdresser may accidentally spill bleach or drop scissors in their client’s lap, who might consequently feel they’re entitled to compensation.
- A self-employed plumber deals with customers and meets members of the public most times during their work. That means a plumber could risk being accused of causing an injury or property damage.
- An accountant might regularly visit their client’s home or office or have clients come over. There is always a risk of a bad fall or accidental damage to expensive items that may result in a claim.
- A customer trips and falls over equipment someone left lying around. The customer suffers an injury and claims compensation.
- A painter accidentally spills paint on a client's expensive rug, causing damage that requires professional cleaning or replacement.
- An electrician accidentally damages a customer's electrical appliance while working on their property, resulting in the customer claiming the repair or replacement cost.
- A plumber accidentally damages a client's water pipe while fixing another issue, causing water damage to the property and resulting in a compensation claim.
- A landscaper's equipment damages a neighbour's car while working on a project next to the neighbour's property, resulting in a claim for repairing the damage.
Limited company professional indemnity insurance
For limited company directors, professional indemnity insurance offers protection against accusations of professional mistakes, negligence or failure in their duty of care towards unhappy customers.
Often, limited companies provide solutions, recommendations and expertise to solve their clients' problems. However, mistakes and errors can occur, leading to potential breaches of duty of care or costly consequences.
What does professional indemnity insurance cover for a limited company?
Professional indemnity insurance protects limited companies from claims or accusations of wrongdoing from their professional advice.
Cover includes:
- Failing your duty of care
- Making a mistake
- Acting negligently
- Giving the wrong advice or recommendation
For example, you may be facing financial demands from a client because:
- An architect's faulty plans may lead to having to rebuild certain parts of a project.
- A physiotherapist may give incorrect advice and cause a client to injure themselves further.
- A marketing agent may be accused of being negligent when managing an expensive marketing campaign.
- An accountant makes a mistake, and their advice leads to a fine from HMRC; there is a clear connection between the professional advice and the loss.
- A hairdresser recommends a specific treatment or product that goes wrong. In the eyes of professional indemnity insurance, this could be considered professional advice.
What professional indemnity limit do limited companies need?
The amount of professional indemnity coverage required for your company depends on the type of activities you engage in. When deciding on a coverage limit, consider your frequency of work, number of clients, and potential financial consequences if there is an issue with your advice or recommendations.
Switching your professional indemnity insurance
Typically, in the UK, if you cancel a professional indemnity policy, you can no longer claim against it.
Therefore, if you switch your limited company insurance provider, be sure your new policy covers your past work, called “retroactive cover”.
Should I keep professional indemnity insurance if I take a pause or retire?
If you're taking a break or retiring from your company, it's advisable to maintain your professional indemnity coverage. Claims related to professional misconduct may arise even months or years after the work has been delivered.
Remember: If you cancel your policy, your insurance coverage will end, including coverage for any previous work.
It's entirely up to you to decide how long you want to keep your cover in place. It's important to consider the type of work you were involved in and the possibility of a client filing a claim against you.
Other insurance limited companies buy
There is quite a wide range of business covers, and it would be difficult to list them all here. Let’s touch on the more common ones that tend to be sought after.
Commercial legal expenses insurance
Most commercial legal expenses insurance will protect you against various tax and legal issues you may encounter due to your profession, which are not covered by professional indemnity or public liability.
At Suited, we combined £100,000 of commercial legal expenses insurance with helplines and other tools to better assist you in dealing with these issues, and it’s part of your subscription.
Commercial Legal Expenses provides qualified advice and assistance with:
- Legal and tax matters concerning your business
- Criminal prosecution
- Compliance & regulation issues
- Unpaid invoices (over £200)
For example:
- HMRC investigations into your tax affairs
- You need legal help chasing a client who has not paid a significant invoice.
- You wish to take a business partner or client to court over a breach of contract.
- You required guidance on compliance or regulatory issues for your business.
Limited company employers' liability insurance
If your limited company has multiple directors or employs staff, it is legally required to have employers' liability insurance in the UK.
It's important to note that the definition of an employee is broad and may include self-employed workers, freelancers, or volunteers. We recommend checking the UK Government website for the most up-to-date information.
Failure to have employers' liability insurance could result in costly consequences.
Directors & officers liability
As a limited company director, you hold specific responsibilities that increase as the company grows and engages in more business activities.
It's imperative to consider insurance if your company has an intricate shareholding, borrows money, or has complicated supply chains.
If you make an error as a director, you may face personal liability for any resulting damages or compensation. Directors & Officers Liability insurance provides legal coverage to safeguard against these situations,
Buildings, contents and equipment insurance
Your limited company assets should be protected by insurance if they are critical to the business’s daily operations and could be costly to repair or replace.
For an IT consultant's home-based business could be the laptop and related accessories. A builder will worry about their tools. A letting agent will have premises full of electronic equipment that need protection.
These types of covers can be bought together in one policy or separately, depending on the needs of your limited company.
Business interruption insurance
If your business is premises-based and the premises are essential to your revenue, you should consider business interruption insurance.
If you have to close your premises down, it could cause a severe drop in revenue. The event could be a fire, flood or particularly nasty burglary.
Business interruption insurance is designed to replace some of that lost revenue while you get your premises back up and running.
Cyber insurance
Most businesses operate online to some degree. Some might have a minimal presence on social media, but many will sell online or even provide software to enable others to trade online.
Cyber risks are genuine these days, and no one is safe. As a business, you could be a victim of a cyber attack that might cause harm to you or your customers.
Protecting the people in your limited company
The success of small or young limited companies depends on the people behind the company.
Several products can help a limited company deal with a problem due to losing a key staff member to severe illness or death.
One that protects the company is usually called key person insurance. It is effectively a life cover that benefits the limited company should a key worker be ill or die.
Any key worker can be covered by key person insurance - the owner, manager or the head of sales. Simply anyone whose absence would have a significantly negative impact on the runnings of the company.
Limited company insurance requirements
As an owner or director of a limited company, securing the appropriate insurance to safeguard your company's assets, bank balance, and reputation is crucial.
In the UK, there are no specific requirements for business insurance for limited companies as it depends on the company's activities. It is advisable to consider different types of insurance coverage based on the risks your company may encounter and the assets it owns. Typically, insurance for a limited company entails more than one type of coverage.
