What business insurance is legally required?

Employers' liability insurance is legally required if you have any employees (including temporary or casual staff). You must have at least £5 million cover. Other types are not legally required but are essential in practice — for example, professional indemnity is required by many regulatory bodies and clients.

How much does business insurance cost?

Costs vary enormously by business type and risk. Sole traders typically pay £100-£500/year for professional indemnity and public liability. Small businesses pay £200-£1,500/year for a combined policy. Employers' liability for a few employees costs £40-£200/year. High-risk trades (construction, manufacturing) pay significantly more.

Do sole traders need business insurance?

Sole traders do not legally need business insurance unless they have employees (in which case employers' liability is required). However, professional indemnity insurance is strongly recommended if you provide advice or services, and public liability is essential if you meet clients or work on their premises.

Business Insurance Guide UK — What Cover Do You Need? | PocketWise

Business insurance protects your livelihood — from client claims to equipment damage to legal disputes. Some cover is legally required; other types are strongly recommended or practically essential for winning clients.

Types of Business Insurance

Insurance Type	What It Covers	Required?
Employers’ liability	Employee injury/illness claims	Yes (if you have employees)
Professional indemnity (PI)	Claims of negligent advice/service	Often required by clients/regulators
Public liability	Injury/damage to third parties	Not legally, but practically essential
Product liability	Claims from products you sell	Essential for product businesses
Cyber insurance	Data breaches, cyber attacks	Increasingly important
Business contents	Your equipment, stock, furniture	Recommended
Business interruption	Lost income if you cannot trade	Recommended
Key person	Loss of a critical person in the business	For partnerships and businesses with key individuals
Directors’ and officers’ (D&O)	Personal liability of directors	For limited companies

Who Needs What?

By Business Type

Business Type	Essential Cover	Recommended
Freelancer (service)	Professional indemnity	Public liability, cyber
Sole trader (trades)	Public liability	Employers’ liability (if staff), tools cover
Limited company	Employers’ liability (if staff), PI	Public liability, D&O, business interruption
Retail/e-commerce	Product liability, public liability	Business contents, cyber, business interruption
Landlord	Landlord insurance	Rent guarantee, legal expenses

By Profession

Profession	Required/Expected Cover
Accountants	Professional indemnity (regulatory requirement)
IT consultants	Professional indemnity, cyber
Builders/tradespeople	Public liability (clients expect), employers’ liability
Consultants	Professional indemnity
Therapists	Professional indemnity, public liability
Photographers	Public liability, equipment
Tutors	Public liability, professional indemnity

Employers’ Liability Insurance

Detail	Requirement
Minimum cover	£5 million
Who needs it	Any business with 1+ employees
Includes	Temporary staff, casual workers, apprentices
Excludes	Family members (in some cases)
Penalty for not having it	Fine of up to £2,500 per day
Display	Certificate must be displayed (or available electronically)
Typical cost	£40–£200/year (low-risk office); £200–£1,000+ (trades/manual)

Professional Indemnity Insurance

Detail	Info
What it covers	Claims that your advice, designs, or services caused a financial loss
Who needs it	Anyone providing advice, consultancy, design, IT, or professional services
Required by	FCA (financial advisers), RICS (surveyors), RIBA (architects), SRA (solicitors), many clients
Typical cover	£100,000–£5 million
Typical cost (sole trader)	£100–£500/year
Typical cost (small company)	£300–£1,500/year

Examples of PI Claims

Scenario	Claim
IT consultant’s software crashes client system	Client claims for lost revenue
Accountant makes error in tax return	Client claims for penalties incurred
Designer’s work infringes copyright	Rights holder sues for damages
Consultant gives incorrect strategic advice	Client claims for resulting losses

Public Liability Insurance

Detail	Info
What it covers	Injury to a member of the public or damage to their property caused by your business
Who needs it	Any business with customer/public contact
Typical cover	£1 million–£10 million
Typical cost	£50–£300/year (low risk); £200–£1,000+ (higher risk)

Examples of Public Liability Claims

Scenario	Claim
Customer trips in your premises	Medical costs, compensation
Plumber floods client’s kitchen	Repair and damage costs
Event organiser’s structure collapses	Injury claims

Cyber Insurance

Detail	Info
What it covers	Data breaches, ransomware, system failure, GDPR fines
Who needs it	Any business handling personal data or relying on IT systems
Typical cover	£100,000–£1 million
Typical cost	£150–£1,000/year
Why it’s growing	Cyber attacks on small businesses are increasing dramatically

Saving Money on Business Insurance

Strategy	Detail
Combined policies	Bundle cover types for one premium
Higher excess	Increases the amount you pay per claim
Shop around	Compare at renewal — don’t auto-renew
Reduce risk	Better security, procedures, and record keeping
Annual payment	Usually cheaper than monthly
Trade/professional body discounts	Members often get discounted rates

Making a Business Insurance Claim

Step	Action
1	Notify your insurer immediately (do not wait)
2	Do not admit liability — let the insurer handle it
3	Document everything — photos, contracts, correspondence
4	Cooperate with the insurer — provide information they request
5	Keep trading — maintain your business as normally as possible

For related guidance, see our self-assessment guide and registering as self-employed.