Business insurance explained: what's compulsory and what's optional
Business insurance is cover your business buys to pay for things that could otherwise sink it: an injured employee, a client who says your advice cost them money, a stolen laptop or a flooded unit. Only some of it is required by law in the UK. This guide sorts the compulsory from the optional, explains the main types in plain English and shows you how to check a policy before you pay for it.
What the law requires
Most business insurance in the UK is a choice, not a legal duty. Two kinds of cover are the main exceptions you're likely to meet as a small business:
| Cover | Required by law? | When it applies |
|---|---|---|
| Employers' liability | Yes, for most employers | From the day you become an employer, with some exemptions |
| Motor insurance | Yes, third party as a minimum | Any vehicle used on public roads |
| Public liability | Not by general law | A client, venue or council may ask for it |
| Professional indemnity | Not by general law | Some professional bodies and contracts require it |
| Property, stock and equipment | No | A landlord or lender may require some cover |
GOV.UK says that for vehicles, "third party insurance is the legal minimum". It covers damage or injury you cause to other people and their property, not repairs to your own vehicle. If you use a car or van for work, tell your insurer how you use it, because a personal policy may not cover business journeys. Read the GOV.UK vehicle insurance guidance for the rules.
"Not required by law" doesn't mean you can skip business insurance. A shopping centre may refuse a market stall without public liability cover. A client contract may set a minimum level of professional indemnity. Read contracts and leases closely before you sign them.
Employers' liability business insurance in detail
This is the business insurance most likely to be a legal requirement for you. GOV.UK says you must get employers' liability (EL) insurance as soon as you become an employer. It helps pay compensation if an employee is injured or becomes ill because of the work they do for you.
- 1
Cover of at least £5 million
GOV.UK says your policy must cover you for at least £5 million, and it must come from an authorised insurer.
- 2
Check the insurer
You can check an insurer is authorised on the FCA Financial Services Register.
- 3
Display the certificate
You must display your certificate where employees can see it, which GOV.UK says can include your website or intranet. You must also show it to inspectors if asked.
- 4
Know the penalties
GOV.UK says you can be fined £2,500 for every day you aren't properly insured, and £1,000 if you don't display the certificate.
There are exemptions. GOV.UK says you may not need EL cover if you only employ close family members, or only employ people based outside England, Scotland and Wales. The rules on who counts as an employee can be fiddly, so read the GOV.UK employers' liability guide or ask an insurance broker rather than assuming you're exempt.
If you're a sole trader with no staff, this part of your business insurance generally isn't something you need yet. It becomes relevant the day you take someone on, even part time.
Other common types of business insurance
Beyond the legal minimum, business insurance falls into a few broad groups. Insurers name and bundle products differently, so treat these as categories rather than product names.
Public liability
Covers claims from members of the public or clients who are injured, or whose property is damaged, because of your business. Think of a customer tripping over a cable in your shop, or a decorator spilling paint on a sofa.
Professional indemnity
Covers claims that your advice, design or service was negligent and caused a client a financial loss. Common for consultants, accountants, designers and anyone whose product is expertise.
Property and contents
This kind of business insurance covers premises, fixtures, stock and equipment against risks such as fire, flood and theft. Home insurance may not cover business equipment kept at home, so ask your insurer.
Business interruption
Usually an add-on to property cover. It can pay lost income or extra costs if an insured event, such as a fire, stops you trading for a while.
Product liability
Covers claims that something you made, sold or supplied caused injury or damage. Often sold together with public liability.
Cyber
Covers some costs after a data breach or cyber attack, such as restoring systems. What's included varies widely between policies.
You won't need every type of business insurance. A one-person bookkeeping business and a café with six staff face very different risks, and their business insurance should look different too.
Which business insurance fits which business?
These examples show how the mix of risks changes the questions you'd ask. They're illustrations, not recommendations: an insurance broker or the insurer can tell you what fits your situation.
Freelance copywriter, working from home
No staff, no visitors, no van. The main risk is a client claiming a mistake cost them money, so professional indemnity is the question to look at first. Check whether home insurance covers the laptop.
Mobile dog groomer with a van
Motor insurance with the right business use is a legal must. Public liability matters because you handle clients' animals and work at their homes. If you hire an assistant, EL becomes compulsory.
Small café with part-time staff
EL is compulsory from the first hire. Public and product liability matter because customers eat on site. Property, stock and business interruption cover protect the premises and income.
Online shop selling handmade candles
Product liability is worth asking about, since you make what you sell. Stock cover matters if you hold inventory at home or in storage.
Whether you're a sole trader or a limited company can also change what you need, because a company is a separate legal person. Our guide to sole trader or limited company explains the difference.
Words you'll see on a business insurance policy
- Premium
- What you pay for the cover, monthly or yearly. Ask whether a quote includes all taxes and fees.
- Excess
- The part of each claim you pay yourself. A higher excess often means a lower premium, but more cost to you when you claim.
- Limit of indemnity
- The most the insurer will pay, per claim or in total for the year. Contracts sometimes set a minimum.
- Exclusions
- What the policy won't cover. Read these first: they tell you more about a policy than the headline.
- Claims made vs claims occurring
- Some policies, often professional indemnity, cover claims made while the policy is active. Others cover incidents that happen while it's active. This matters if you stop trading or switch insurer.
- Retroactive date
- On a claims-made policy, the date before which past work isn't covered.
Before you buy: a checklist
- Before you shop for business insurance, list what could realistically go wrong in a normal working week: injury, damage, a mistake, theft, a cyber attack.
- Check which cover is legally required for you: EL if you employ anyone, motor if you drive for work.
- Read every contract, lease and venue agreement for insurance clauses and minimum limits.
- Describe your business accurately. A wrong trade description or turnover can lead to a refused claim.
- Compare business insurance quotes on exclusions and excesses, not just the premium.
- Check the insurer or broker is authorised on the FCA register.
- Diary the renewal date and review your business insurance when you hire, move or add a service.
- Keep certificates and schedules where you can find them fast.
Simply Business refer-a-friend offer: £25 gift card
If you're comparing quotes, Simply Business, an online insurance broker, runs a refer-a-friend scheme. New customers who buy through a referral link can get a £25 e-gift card once their policy qualifies.
Refer a friend · business insurance
Simply Business: £25 gift card for new customers
- Buy a 12-month business, shop or landlord insurance policy through the referral link. The referral code RAFXA is applied automatically.
- You mustn't have had an active Simply Business policy in the last 12 months.
- Your policy must still be active 60 days after it starts, with the first instalment or full premium paid.
- The e-voucher is redeemed through a third-party gift card site and must be used within 90 days.
- For purchases up to 31 December 2026, under terms dated April 2026. Can't be combined with other offers.
This is a refer-a-friend link: if you buy a qualifying policy, we may receive a referral reward. Simply Business is a trading name of Xbridge Limited, which is authorised and regulated by the FCA. We don't give insurance advice; check a policy's cover and exclusions suit your business before you buy. View terms · Disclosure
Paying premiums and handling claims
Business insurance is a cost to plan for from the start. Our startup costs guide shows how to fit it into your first-year budget alongside registration, equipment and software.
Pay business insurance premiums from your business account, not your personal one. That keeps the cost on your business records, makes it easier to see what you spend, and leaves a clean trail if your accountant asks. If you're still choosing an account, you can compare business bank accounts by fees and features. Many app-based accounts, such as Tide, let you tag payments and attach documents, which helps at tax time.
When something goes wrong, tell your insurer as soon as you can, follow their claims process and keep evidence: photos, emails, receipts. If a claim is turned down and you think that's unfair, complain to the insurer first. Eligible small businesses can then go to the Financial Ombudsman Service.
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Business insurance FAQs
Is business insurance a legal requirement in the UK?
Only some of it. Employers' liability is compulsory for most employers, and third party motor insurance is the legal minimum for any vehicle on the road. Other business insurance is optional by law, but contracts, leases or professional bodies may require it.
Do sole traders need business insurance?
A sole trader with no employees and no work vehicle may have no legal duty to insure. Many still choose public liability or professional indemnity because they're personally liable for business debts and claims.
How much employers' liability cover do I need?
GOV.UK says at least £5 million, from an authorised insurer.
Does home insurance cover my business equipment?
Not always. Many home policies limit or exclude business use. Ask your insurer before relying on it.
Can I claim business insurance as an expense?
Business insurance premiums are often an allowable cost, but the rules depend on your situation. Check GOV.UK guidance or ask an accountant.
Sources
- Simply Business: refer-a-friend terms (April 2026)
- GOV.UK: Employers' liability insurance
- GOV.UK: Vehicle insurance
- FCA Financial Services Register
- All sources checked 25 October 2026.