What insurance does a limited company need?

If you're someone who's looking to launch a new start-up or possibly scale-up their side hustle, you might have heard the term, 'incorporation', mentioned to you several times.

It's a sure way to protect yourself as your business grows, with clear legal benefits as well as obligations.

But, seeing as there's a bit of extra hassle involved, what does being a limited company mean? And what limited company insurance do you need?

What makes a limited company?

You'll probably set yourself up as either a sole trader, limited company, or a partnership when you start your business.

There are other types of companies, but if you incorporate yourself at Companies House, you'll probably be 'limited' as over 92% of all corporate body types fall into that category.

Being a limited company means you're 'limited' by shares (if your company has shares and shareholders) or by guarantee (the money gets invested back in, so not-for-profit). 

As a limited company, your personal and business finances are separate. There's also a list of other responsibilities you have to meet, or you could face a fine.

Sole traders have 'sole' responsibility money-wise. Partnerships mean, well, you have a partner who you share accountability with.

And with that in mind, what are limited company insurance requirements?

What insurance does a limited company legally require?

If anyone works for you, you're legally required to have employers' liability insurance. There are always exceptions to the rule, though. For example, if you're the only director of your limited company and the only employee. 

Employers' liability insurance (EL) is there if a staff member has an accident or is made ill through work and they say it's the business's fault. If they make a claim against you, EL pays for a solicitor to defend you, and it'll pay any compensation if it's awarded. 

While not strictly a legal requirement, trade bodies, such as RICS (for surveyors) or the Complementary Natural Health Care Council, make having certain levels of insurance a condition of membership. You'll have to check your trade organisation's website and membership terms for specifics. 

What are other limited company insurance requirements?

If a trade body specifies insurance, it'll most likely be professional indemnity (PI). Or, if you're in beauty, medicine, aesthetics or therapy, you'll be looking for medical malpractice ("med mal" for short, or 'treatment and liability'). Both of these are designed to protect you if you mess up professionally. 

You can read more about the differences here, but essentially, PI covers you if a client is financially impacted by a mistake you've made or bad advice you've given. For example, an accountant could get the figures wrong, meaning a client makes damaging business decisions based on faulty projections.

And medical malpractice is more about if you physically or mentally injure a client. Say a treatment doesn't go to plan, or the result isn't what was promised. 

You'll need one or the other, but not both. If a client sues because your work wasn't up to scratch, your insurance pays for a specialist solicitor to defend you. And it covers any compensation you have to pay – which can involve some hefty sums.

If you meet with people, either when you're out and about or have clients at your workplace, public liability insurance (PL) is a good investment. You won't deliberately trip them up and break their wrist. Neither, unfortunately, will that cup of coffee magically un-splash over their laptop. 

But, if you or they are a bit accident-prone, PL will keep your limited company finances safe when it comes to third-party slips, trips, and smashes. Again, it pays for a specialist solicitor to defend you if you need them and covers any compensation awarded.

You might also want to think about…

A limited company means your personal and business finances are separate. But as a director, that doesn't mean your finances are safe. 

If a regulator, shareholder, employee, customer, competitor, or member of the public say you, personally, have made a mistake or done something wrong, they can take legal action.

That means you have to pay out personally if you're found liable. Directors' and officers' insurance will pay a solicitor to defend you and cover any compensation awarded.

If your company works 'online', then cybercriminals could target you. And they aren't picky over the size of their target. Big, small, not-for-profit, multinational - anyone can be a victim. 

If you have a website, they can hack you. If you send emails, they can trick you. Cyber insurance covers both.

It gets you immediate access to IT experts to stop these types of attacks and fix your systems. It also provides legal experts if you need them. You can even add financial cybercrime and business interruption cover to your policy.

So, what insurance you need will depend on what you do. And knowing the requirements for your limited company insurance is half the battle. Find out more about limited company insurance. Or call us on 0345 222 5391 to speak to the team.

Image used under license from Shutterstock.