BUSINESS INSURANCE GUIDE
How much business insurance cover do I need?
A new client emails over a contract and, buried halfway through it, is a requirement for £2 million of Professional Indemnity Insurance.
BUSINESS INSURANCE GUIDE
A new client emails over a contract and, buried halfway through it, is a requirement for £2 million of Professional Indemnity Insurance.
You've currently got £1 million, so what do you do? Increase it to £2 million? Would £5 million be safer? Is £2 million simply what everyone buys?
Insurance limits can sometimes feel like numbers pulled from thin air, but there are practical things that can help you work through the decision.
Before trying to choose a number yourself, check what your clients require.
Larger organisations often have standard minimum insurance requirements for suppliers. A contract might, for example, specify £1 million of Professional Indemnity, £2 million of Public Liability or £10 million of Employers' Liability.
If your client has specified a minimum, you've immediately got an important benchmark. It's much better to discover that before signing the contract than after you've won the work.
The potential consequences of something going wrong can vary enormously.
A consultant advising a small business on a limited project presents a different potential exposure from one working on a multimillion-pound transformation programme. Likewise, a decorator working in a domestic property faces different risks from a contractor undertaking work at a major commercial site.
Don't automatically assume that a small business can only have a small claim. A one-person consultancy can still undertake work where an alleged mistake has significant financial consequences.
Sometimes the insurance requirement has less to do with the size of your business and more to do with the size of your client.
Large companies and public-sector organisations can impose standard minimum limits across their supplier base. As a result, a one-person consultancy can sometimes be asked to carry the same insurance limit as a much larger supplier.
That's simply part of working with certain organisations.
Some professional bodies require members to maintain specified types or levels of insurance. Requirements can depend on the profession, turnover or type of work undertaken.
If membership of a professional body matters to your business, check its current requirements rather than assuming the cover you've always carried is still sufficient.
The headline number doesn't necessarily tell the whole story.
Depending on the policy, a limit might apply separately to each claim or be an aggregate amount shared across multiple claims during the policy period. The treatment of legal costs can also vary.
That's why comparing policies purely on the biggest number isn't particularly helpful. How the limit operates matters too.
Not necessarily. Higher limits can mean higher premiums, so the objective isn't simply to select the largest number available “just in case”.
Think about what your contracts and profession require, the work you're undertaking and the potential exposure your business faces.
And revisit those questions as the business grows. The £1 million limit you selected when you started out may not reflect the contracts you're winning three years later.
