Most new business owners start with the same set of questions. Do I need insurance to start a business? Which types of cover are required? What else could I need in practice? Some insurance is required by law in certain situations, while other covers protect you against risks involving clients, products, premises, equipment, or data.
The useful distinction is between cover you must have and cover you may need because of how your business operates. This guide explains when business insurance is required, which optional covers to consider, when to arrange them, and what can affect the cost.
Key Takeaways
- Employers’ liability insurance is normally required once you become an employer, subject to exemptions.
- Other insurance depends on your risks, but clients, landlords, venues or professional bodies may require specific cover.
- Arrange relevant insurance before the activity that creates the risk rather than waiting for a problem to arise.
- Small business insurance doesn’t have a single price. Your work, turnover, limits, employees, and selected cover all affect the premium.
Is Business Insurance a Legal Requirement in the UK?
For most businesses, employers’ liability is the main mandatory business insurance if you employ staff, under the Employers’ Liability (Compulsory Insurance) Act of 1969. Motor insurance is also legally required if you use vehicles for business, including a personal vehicle used for work. Some regulated professions may also have professional indemnity requirements.
Most other business insurance types are chosen according to the risks you actually face. The right cover depends on whether you meet clients in person, give professional advice, sell products, hold customer data, or rely on premises and equipment.
Many businesses therefore carry more insurance than the law requires. A client may ask for public liability insurance before awarding work, a landlord may set insurance conditions for rented premises, and a regulator or professional body may require professional indemnity before you can practise.
That distinction matters because a policy can be optional under law but still required before you take on a contract, rent premises, or register with an organisation or association. Check these requirements before you start trading.
Employers’ Liability Insurance: The One Cover You Must Have
In Great Britain, you must normally arrange employers’ liability 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. The legal minimum is £5 million from an authorised insurer.
The requirement depends on the actual working relationship, not just the job title. It can also apply to apprentices and some temporary or training arrangements. Employers’ liability policies will usually cover unpaid work-experience students and people on training programmes, but you should check if the arrangement is unusual or long-term.
Family businesses can be exempt when all employees are close relatives, unless the business is incorporated as a limited company. A limited company with only one employee may also be exempt if that employee owns at least 50% of the issued shares.
As of 2026, you can be fined up to £2,500 for each day you don’t have suitable cover. Failing to display the certificate or show it to HSE inspectors when asked can lead to a further fine of up to £1,000.
At Westminster, employers’ liability is available as an optional addition to the combined policy.
The Main Types of Cover Explained
Before buying small business insurance, start by reviewing events that could cause serious losses. A consultant, a retailer and a tradesperson face different risks, so the same policy mix will not suit every new business. These are the most common covers to consider:
| Cover | Protects against | Who typically needs it? | Is it legally required? |
| Public liability | Claims that your business activities caused injuries or property damage | Businesses that meet customers or visit clients | Generally no |
| Professional indemnity | Claims that your advice, work or service caused financial loss | Consultants and other professional service businesses | Mostly no, but some regulators or contracts require it |
| Product liability | Claims that goods you made, sold, supplied or installed caused injury or damage | Sellers, makers, installers and distributors | Generally no |
| Medical malpractice | Patients claiming a procedure, medical advice or treatment caused them harm | Professionals whose advice or services can impact health outcomes | May be requested by regulators, professional bodies or partner clinics |
| Workplace contents & equipment | Loss or damage to insured business equipment and contents | Businesses relying on tools, computers, furniture or equipment | Generally no |
| Stock | Loss or damage to insured goods held for sale | Retailers and other businesses holding stock | Generally no |
| Cyber & data | Certain losses from data breaches, hacking, or loss of digital data | Businesses trading online or holding customer data | Generally no |
| Business interruption | Lost income when a covered event prevents normal operations | Businesses dependent on premises, equipment or stock | Generally no |
| Personal accident | Financial protection following specified accidental injury | Owners whose income depends heavily on their ability to work | Generally no |
These definitions and examples are consistent with current UK government and ABI guidance on common business insurance types.
The first three covers mostly address claims related to customers, professional work, or products. For example, if a customer slips in your reception area, public liability insurance may be relevant. If a client alleges that your advice caused financial loss, professional indemnity insurance may apply. The policies might cover legal and compensation costs in valid claims.
A retailer may need stock cover if fire or theft damages goods held for sale. Equipment cover can help if essential tools or computers are lost or damaged. Cyber insurance may be relevant if customer data is exposed in a breach or your systems are hacked.
Which Cover Does Your Business Actually Need?
Choose business insurance by working backwards from how you operate. Ask what could go wrong, who could make a claim, and which assets or systems would be expensive to replace.
- Do you have employees? If yes, you most likely need employers’ liability insurance. Exemptions are possible.
- Do customers visit you, or do you work on their premises? Public liability insurance may be relevant if your work could injure a customer or damage their property. For example, a visitor could trip over a cable in your office, or you could accidentally damage a client’s premises.
- Do you give advice or provide professional services? Professional indemnity insurance may help if a client says an error, omission, or negligent advice caused them financial loss.
- Do you sell, supply, make, or install goods? Product liability may be relevant if a product you made, sold, supplied, or installed causes injury or property damage.
- Do you store customer information or rely on online systems? Cyber and data cover may be relevant if a data breach, cyberattack, or loss of digital data could lead to financial loss.
- Are you running a limited company? If you’re the company’s only employee and own at least 50% of its issued share capital, the employers’ liability exemption may apply.
Your business structure also affects what you need. A sole trader with no employees may not need employers’ liability but can still face claims from clients or the public and need professional indemnity or public liability insurance. A limited company with staff will usually need employers’ liability. An online business may add professional or cyber risks.
You may ask, “Do I need insurance to start a business from home?” Home insurance may not cover business stock, computers, or customer visits. Check your policy wording and tell your insurer how you use the property to avoid gaps in cover or problems if you need to make a claim. If you keep valuable stock or equipment at home, check that it is insured for business use.
How Much Does It Cost to Insure a New Business?
There is no standard insurance cost for a new business. Premiums depend on what you do, the level of risk, turnover, selected limits, number of people insured, claims history, and any extra sections you add.
Westminster Insurance currently offers business insurance cover from £9.97. That is a starting price, and your quote will depend on your business details and the cover you select.
ABI-commissioned research published in 2026 found that sole traders spent £250 to £499 annually across all insurance policies. Businesses with one to nine employees reported a median of £1,000 to £1,999 per year.
Higher-risk work and higher cover limits can also increase the premium. A small consultancy with no staff will usually be priced differently from a retailer with employees, stock, and customer-facing premises.
Compare cover details, not just price, including limits, exclusions and conditions. Adding cyber, equipment or personal accident cover can change the cost. Westminster policies are annual, with payment available monthly or yearly.
Frequently Asked Questions
Arrange relevant cover before your first client or order if the work could potentially create a risk you want insured. Insurance generally will not cover a claim you already know about or expect when you buy the policy. With Westminster, cover can be arranged online within minutes.
You are not legally required to have employers’ liability insurance if you’re self-employed and work alone, but you may need to consider other types of cover. Clients, landlords, venues, or professional bodies may require public liability or professional indemnity insurance.
In Great Britain, the legal minimum for employers’ liability insurance is £5 million if the law applies to you. For other types of business insurance, there is no single minimum level. Clients, landlords, or contracts may set their own minimum cover amounts.
When to Arrange Cover Before You Start Trading
To determine whether you need insurance to start a business, start with the legal requirements for your setup, then identify the risks created by your work, clients, products, premises, equipment, or data. Arrange each relevant small business insurance policy before that exposure begins.
If you plan to hire, get employers’ liability. Depending on the operations, you may also need motor or sector-specific insurance.
Get a quick online quote to see the available cover options and details you need to know before your trade begins.
Westminster Insurance Ltd. is authorised and regulated by the Financial Conduct Authority. Registration number: 439023.
