Insure a successful start-up

Insurance is compulsory by law when setting up in business for both employer's liability (unless you're the only member of staff) and motor vehicles (third party). However, you might also want to consider public liability cover and professional indemnity insurance, as well as other areas of sensible or appropriate protection.

Whilst employer's liability insurance (minimum requirement £5 million) covers you for injury, disease or death sustained by employees and caused by your or other employee carelessness, public liability goes outside the workplace, so to speak.

You have a legal liability to pay damages to members of the public for death, bodily injury or damage to their property occurring as a result of your business activities. Whether this business is, say, the running of a railroad or a small consultancy with rickety-staired customer access then it makes eminent sense to take out insurance cover. Court awards for injury are high and if it's a multiple situation (your van driver mows down a bus queue) you would be facing a very heavy payout.

It is important to assess, bearing in mind our litigious times, the amount of damages you could be exposed to when deciding how much insurance cover to buy. Advice is available from the Health and Safety Executive and your insurer will provide assistance with correct risk assessment, as well as detailing the many conditions, exclusions and warranties that can be applied to public liability policies.

Along with protection against awards of damages, this type of insurance also covers related legal fees, costs and expenses, eg representation at a fatal accident enquiry. Remember, you don't have to be a big business to need public liability insurance; working from home with visiting customers or members of the public (think mad dog and stationery deliveryman) could just as easily make you a contender.

When knowledge lets you down

Professional indemnity insurance is a form of cover in respect of financial liabilities to third parties arising from acts or omissions in the course of your business or employment. It protects you against compensation sought by a client or patient if you've made mistakes or are deemed negligent. Associated legal costs are also covered.

Most professionals such as doctors, architects, designers (but surprisingly not journalists and editors) carry such insurance cover and it is a positive requirement for lawyers, accountants and financial advisers. A specialist insurer, for instance Lloyd's, is needed as the sums involved are usually considerable and premiums are not cheap.

It's worth noting that there's frequently a long delay between a compensatory event and the subsequent claim being made; therefore if planning to cancel your professional indemnity policy (sabbatical or business goes bust!) you will need to arrange 'run off' cover for a period of time afterwards. This can also apply if you change insurers.

Equally important is the partnership aspect; all partners in a business are liable 'jointly and severally' for a colleague's wrongdoing to a third party (including retired partners if the misdeed took place before retirement). They can be sued individually and/or as a firm.

Other than that needed to cover legal liabilities, business insurance is invariably required for such as buildings and contents, plant/engineering breakdowns, theft, income protection, key person cover and because you've devoted so much working time to setting up all these insurances protection against business interruption! But that's another story...

29 July 2005 © Moneyextra.com

back

Moneyextra.com recommends you should consider taking independent financial advice before acting on any article. Please contact us for help with your individual circumstances if any assistance is required.