What insurance does my UK business need?

Do I need business insurance to start a limited company in the UK?

No insurance is required at the point of incorporation. When you register a company with Companies House, you won’t be asked to provide proof of cover, and you can complete the entire process without taking out a policy.

But that doesn’t mean insurance won’t become necessary shortly afterwards. The moment your company becomes active – such as hiring staff, selling products, meeting clients, or holding stock – you’ll almost certainly need cover of some kind.

Some types of insurance are legally required. Others are simply essential in practice: to protect your company’s finances, to satisfy client contracts, or to provide peace of mind that if something goes wrong, your business won’t be derailed.

What business insurance is legally required in the UK?

There are two main types of business insurance that are mandatory in specific circumstances:

1. Employers’ liability insurance (EL)

This is a legal requirement if your company has employees – even just one. It applies from the day your first staff member begins work, and includes full-time, part-time, casual, and (in some cases) freelance workers.

The law requires you to have at least £5 million of cover, and an FCA-authorised insurer must provide the policy. If you fail to get it when it’s required, the fines are steep: up to £2,500 for each day you go without it.

There are a few exceptions. If your limited company has no employees other than a single director who owns over half the shares, you may not be required to hold EL insurance. But the moment you bring others into the business, even temporarily, the obligation can kick in.

2. Motor insurance for business use

If your company uses vehicles for business or owns them outright, they must be insured. This includes vans, company cars, and even personal vehicles used for deliveries or client visits.

The minimum legal requirement is third-party cover, but most businesses opt for more comprehensive protection. You’ll need to ensure the policy explicitly includes business use; a standard personal policy isn’t enough.

What about all other types of business insurance?

Most other types of cover aren’t required by law, but that doesn’t make them optional in practice.

For many businesses, insurance is what allows them to operate safely. Clients may insist on it before signing a contract. Landlords may require it as a condition of your lease. And in the event of a claim – whether it’s a customer accident, a lost laptop, or a professional dispute – the absence of cover can turn a small issue into a major setback.

So, while it’s important to know what’s legally required, it’s just as important to understand what your business needs in practice, based on how you work, who you work with, and what’s at stake if things don’t go to plan.

Why do business insurance costs vary so much?

There’s no fixed price for small business insurance, because insurers base premiums on the specific risks your business presents. A solo graphic designer working from home might only need professional indemnity and contents cover for a laptop. In that case, costs can stay low.

A watersports business, on the other hand, is public-facing, high-risk, and equipment-heavy – which means needing broader public liability, employer cover, and specialist policies for hazardous activity. The risk to the insurer is higher, and so is the premium.

Other pricing factors include your turnover, number of staff, claims history, location, and cover limits. That’s why two businesses can pay wildly different amounts – even if they’re both small, limited companies.

Key types of business insurance, explained

Here are some of the most commonly used business insurance policies in the UK, with real-world examples of what they cover and why they might matter to your company.

Public liability insurance (PL)

Public liability insurance protects your business if someone from the public – such as a customer, client, supplier, or passer-by – is injured or has their property damaged because of your work. This could be something as simple as a trip hazard in your shop, or a spilt drink damaging a client’s laptop during a meeting.

It’s particularly important for any business that interacts with people in person, whether on your own premises, at a customer site, or at public events. While it’s not legally required, many venues, clients, and trade bodies will insist you have it in place before working with you.

Professional indemnity insurance (PI)

Professional indemnity insurance covers you if a client claims that your service, advice, or work caused them financial loss. This might happen if you miss a key detail in a report, provide faulty guidance, or make a design error that costs the client more to fix.

It’s often seen in fields like consulting, IT, finance, marketing, legal services, and design – but it’s useful for any business that sells its expertise. Again, it's not a legal requirement, but some regulators and clients won’t work with you unless it’s in place.

Property insurance

Property insurance covers your business premises and physical assets against fire, flood, theft, and other damage. It typically applies to offices, shops, warehouses, and studios – including contents, fixtures, and fittings.

It’s important for any business with a physical location or valuable equipment and can also include loss of rent or temporary relocation costs if the premises become unusable.

Product liability insurance

If your business sells, manufactures, or distributes physical products – even if you didn’t make them yourself – product liability insurance can protect you if one of those items causes injury or damage.

Say you sell kitchenware online and a faulty batch leads to burns, or you distribute electronics and a product causes a fire: in those circumstances, this cover can help with legal costs and compensation. It’s especially relevant for ecommerce sellers, dropshippers, and importers, and it’s often sold alongside public liability as part of a combined package.

Business contents and equipment insurance

This type of policy protects the physical items your business relies on, such as laptops, mobile phones, tools, office furniture, or stock. It can also cover accidental damage, theft, or loss.

For small businesses or sole directors working from home, this cover is crucial, as home insurance often doesn’t include work-related assets. If you take equipment off-site or travel for work, make sure your policy includes portable items.

Cyber insurance

Cyber insurance protects your business if you're targeted by a cyberattack or suffer a data breach. This could include being locked out of your systems by ransomware, losing customer data to a phishing scam, or accidentally leaking sensitive information.

These policies can help with the cost of the following:

• Restoring data
• Informing affected customers
• Managing reputational damage
• Dealing with regulatory fines, especially under GDPR.

Even microbusinesses are now common targets, so this is becoming a standard line of defence, particularly for companies that handle customer data or take online payments

Directors’ and officers’ insurance (D&O)

Directors’ and officers’ insurance covers the individuals who make decisions at the top of the company – usually directors, founders, or senior managers – in case they are held personally liable for decisions made on behalf of the business.

This might include accusations of negligence, mismanagement, breach of duty, or errors in financial reporting. It’s most relevant for companies with multiple shareholders or investors, but even smaller firms find value in knowing leadership is protected.

Legal expenses insurance

This policy helps cover the cost of legal representation and advice if your company faces disputes, whether with employees, clients, landlords, or other third parties. It can cover wrongful dismissal claims, unpaid invoices, and disagreements over lease terms.

It’s a helpful layer of protection if you want to avoid the financial burden of hiring solicitors for common business disputes.

Business interruption insurance

If your company has to stop trading temporarily due to an event outside your control – such as fire, flood, theft, or structural damage – business interruption insurance can cover the income you lose during that period.

It’s designed to help keep the business afloat while you recover, covering wages, rent, and other fixed costs until you can resume operations. And it can be particularly useful for premises-based businesses or those with physical stock.

What insurance do startups and small businesses actually get?

Every business is different, but most new companies within a given industry will consider a few key types of insurance to begin with. Below, we’ve set out the main kinds of policies that each business type might weigh up in the early days.

The trick is not to overbuy, but not to leave yourself exposed, either. Focus on what’s actually at risk based on how your business works day to day.

How much does small business insurance cost in the UK?

There’s no flat rate for business insurance, and for good reason. Your premium will depend on what your business does, how much it earns, how many people you employ, whether you interact with the public, and the cover limits you need.

For small, low-risk businesses – such as sole directors offering remote services – prices are usually modest. But the moment risk or complexity increases (staff, premises, physical products, or customer interaction), so does the cost.

Here’s a rough guide to typical entry-level ranges:

• Public liability insurance typically starts at around £60 to £100 per year for very low-risk businesses such as remote consultants. For public-facing businesses, a more typical range is £100 to £250 or more, depending on footfall and sector.
• Professional indemnity insurance usually costs £75 to £200 per year for basic cover, with higher premiums for businesses in regulated industries or offering high-value advice.
• Combined policies – such as a bundle of public liability, professional indemnity, and business contents – often fall between £250 and £600+ per year, based on business size, cover limits, and risk profile.
• Cyber insurance generally costs around £120 to £300 per year for businesses with modest digital risk, but can increase sharply for those handling sensitive data or relying on online systems.

Those are only starting points. Ultimately, the cost of insurance reflects the level of risk being covered, so it’s less about business size and more about exposure. The only reliable way to know what you’ll pay is to get quotes based on your real setup.

How to buy business insurance

You can buy business insurance in a few different ways, and the best option often depends on how complex your needs are.

If you’re confident about the type of cover you need, you can go directly to an insurer like AXA, Hiscox, or Direct Line, or use a comparison site to explore prices across multiple providers. These routes work well for simple setups where you're only insuring one or two risks.

If your business has more specific requirements – such as working at height, hiring subcontractors, or storing client data – you may get better value and advice by working with a specialist broker. Brokers can tailor policies to your industry and help you avoid underinsuring or overpaying for unnecessary extras.

Many insurers now offer bundled packages for small businesses and startups, combining public liability, professional indemnity, and business contents into a single, cost-effective policy. These can be a good starting point – just be sure they actually match your risks, not just your budget.

Need help getting started?

Sorting out business insurance is one of the first steps toward protecting your company – and making sure it’s taken seriously. From covering everyday risks to meeting client expectations, the right policy helps protect your work, your reputation, and your peace of mind.

But knowing what you need and when to get it isn’t always straightforward, especially when you’re first starting out.

At 1st Formations, we help new business owners get their companies off the ground with practical guidance and trusted support. From incorporation to admin to staying compliant, we’re here to make the early days smoother – helping you build a business that’s protected, prepared, and ready to grow.