We're big fans of insurance questions and answers. Especially when they're about business cover. They give us a chance to show how clever we are. And to help you, of course.
As you can imagine, we talk to many a puzzled professional person over the course of a week. That's because business insurance can be a murky subject. So it’s no surprise there’s some serious head-scratching going on out there.
There's so many possible insurance questions and answers that we couldn't hope to answer them all in one go. But we like to shed some light where we can, so here's five questions we've been asked this week.
5 insurance questions and answers for businesses
1. What’s the difference between ‘costs inclusive’ and ‘costs in addition’?
You’ll find these words on a quote or a policy schedule. They relate to how the policy pays legal fees if there’s a claim against you. Contrary to popular belief, they're not an indication of whether legal costs are covered or not (they always are).
They're closely related to the terms ‘aggregate’ and ‘any one claim’. Click here for a detailed explanation of what these mean.
Costs inclusive means the policy pays the total cost of compensation and legal fees involved in a claim in one sum; and from one overall level of cover. Think of the policy as providing one ‘pot’ of money to fund both these expenses. This is usually a feature of an aggregate policy.
Costs in addition means compensation and legal costs are separated and paid individually, each subject to their own (and same) level of cover. So, in effect, the cover is doubled. This is usually a feature of an any one claim policy.
Here’s an example. A policy has a £500,000 level of cover. There’s a valid claim against the insured and the loss is calculated at £350,000. The legal fees to defend the claim come to £95,000.
A costs inclusive policy pays the overall bill of £445,000, leaving £55,000 left to fund any future claims within the policy period.
A costs in addition policy pays the £350,000 compensation from one allocation of £500,000 and the £95,000 legal fees come from an additional allocation of £500,000. What's more, the cover doesn't 'run out' – there's no limit to the number of claims you can make under these types of policy.
2. What name do I put on my insurance?
That depends on your circumstances and the name you use on your contracts. If you’re sued for negligence by a client, they'll cite the name on the contract between the two of you as the person or entity they’re suing.
If the same name doesn't appear on your policy, you’re not covered.
Let’s use our name as an example:
- We're a sole trader with no company name, so the policy should be in our name only: ‘PolicyBee’.
- We're a sole trader but we use a trading name, so it should be: ‘PolicyBee t/as PolicyBee Insurance’.
- We're a company, so it should be ‘PolicyBee Ltd (or LLP, plc etc)’. This is the case even if there's just one person in the business.
Any other trading names of yours should be noted on the policy as ‘additional insureds’. As long as they're not doing anything drastically different to your core business, they’re covered too.
3. Who does professional indemnity insurance cover?
If you’re a sole trader, just you.
If you have employees or you're in a partnership, everyone who works for your company.
Professional indemnity insurance covers the entity’s negligence rather than specific individuals' negligence. You don’t have to name each employee or notify the insurer when people join or leave your business.
4. Is VAT included? And can I claim it back?
No and no.
VAT doesn’t apply to insurance. There’s insurance premium tax (IPT) instead, and the government sets the rate. It's currently 12%. All our quotes include it and, sorry, but you can’t claim it back from HMRC.
5. I thought legal costs were included in professional indemnity insurance. Why do you sell it separately?
What you’re looking at there is a commercial legal expenses policy. It’s separate insurance not related to professional indemnity.
If you’re sued for professional negligence, the costs of investigating the case and fighting your corner are indeed paid by your professional indemnity insurance (as explained in question one).
A commercial legal expenses policy covers the cost of defending your company if you’re involved in a dispute unrelated to your professional services - for example, tax, property and employment issues.
You/we can add it to your quote/policy if needs be, no problem at all.
So that's it for this week. And don't forget – if you have a question (about insurance), let us know and we'll answer it. Give us a ring on 0345 222 5391 or drop an email to firstname.lastname@example.org
Image used under license from Shutterstock.claimscost in additioncost inclusiveinsurance explained