What Insurance Does a Limited Company Need

Why insurance is important for limited companies

Insurance protects a limited company from financial losses caused by accidents, mistakes, or legal claims. Even small businesses can face significant costs from a single incident, such as an employee injury, property damage, or a professional error.

For limited companies, insurance also helps demonstrate professionalism, meet client or contractual requirements, and maintain financial stability if something goes wrong. Some forms of cover are required by law, while others depend on your industry and level of risk.

The types of insurance limited companies should consider

1. Employers’ liability insurance

If your company employs anyone, even on a part-time or temporary basis, you are legally required to have employers’ liability insurance. This protects your business if an employee becomes ill or injured as a result of their work.

The legal minimum cover is £5 million, and most policies offer up to £10 million as standard.

Failure to hold this insurance can lead to fines of up to £2,500 per day until you have valid cover. The policy must also display the employer’s liability certificate where employees can see it.

2. Public liability insurance

Public liability insurance is not mandatory, but it is one of the most common types of cover for businesses that deal with the public, clients, or suppliers.

It covers compensation claims if someone is injured or their property is damaged because of your business activities. For example, if a client slips in your office or you accidentally damage a customer’s property on-site, this policy covers legal costs and compensation.

Typical cover ranges from £1 million to £10 million, depending on your business size and risk exposure.

3. Professional indemnity insurance

Professional indemnity (PI) insurance is vital for companies that provide advice, consultancy, or professional services. It covers you if a client claims they suffered financial loss because of your advice, mistake, or negligence.

Some regulators and professional bodies, such as the Solicitors Regulation Authority (SRA), require PI insurance as a condition of practice.

Even if it is not mandatory in your sector, clients often ask for proof of PI insurance before awarding contracts. Cover levels typically start at £250,000 and can go into the millions for larger or higher-risk firms.

4. Directors’ and officers’ insurance

Directors and senior managers can be personally liable for decisions made in the course of running a company. Directors’ and officers’ (D&O) insurance protects them against claims for wrongful acts, such as breach of duty, negligence, or mismanagement.

It covers legal defence costs and compensation payments if directors are held personally accountable. Without it, personal assets could be at risk.

This insurance is particularly important for companies with multiple directors or external investors.

5. Business contents and property insurance

If your company owns or rents office space, you should consider business contents insurance to protect equipment such as computers, furniture, and stock against theft, fire, or damage.

If you own the building itself, you may also need commercial property insurance, which covers structural damage caused by events like fire, flooding, or vandalism.

Most policies can be tailored to include business interruption cover, which compensates you for loss of income if your business cannot operate after an insured event.

6. Cyber liability insurance

With more companies operating online, cyber liability insurance has become increasingly important. It protects against financial losses caused by cyber attacks, data breaches, or ransomware.

This cover typically includes:

• Costs of restoring systems after an attack.

• Legal fees and regulatory fines.

• Compensation for affected customers.

Cyber incidents can be devastating for small and large businesses alike, so even limited companies that store customer data should consider this cover.

7. Product liability insurance

If your company designs, manufactures, or sells products, you may be liable if those products cause injury or damage. Product liability insurance covers legal and compensation costs if a customer makes a claim.

It is particularly relevant for companies involved in manufacturing, importing, or distributing physical goods.

8. Business interruption insurance

Business interruption insurance covers loss of income and operating expenses if your business cannot trade after an unexpected event such as a fire, flood, or major equipment breakdown.

It ensures your company can continue paying rent, salaries, and supplier costs during recovery. This cover is often included as part of a property insurance package.

9. Commercial vehicle insurance

If your company owns or uses vehicles for work, they must be covered by commercial vehicle insurance.

Standard car insurance does not cover vehicles used for business purposes. Depending on your needs, you can choose policies for single vehicles or fleets, including cover for theft, accidents, and third-party claims.

10. Key person insurance

Some limited companies rely heavily on one or two individuals whose absence would severely affect operations. Key person insurance provides financial protection if a key employee or director dies or becomes seriously ill.

It pays a lump sum to the company to help cover lost revenue or recruitment costs while the business adjusts.

Factors to consider when choosing insurance

When selecting insurance for your company, think about:

• The type of work you do and the risks involved.

• The size of your company and number of employees.

• Client requirements and contractual obligations.

• Regulatory or professional body rules.

• Your business assets and cash flow.

Review your policies annually to ensure they still meet your company’s needs, especially as your business grows or changes direction.

How an accountant can help with business insurance

An accountant can play an important role in assessing which types of insurance make financial sense for your business. They can:

• Advise on the level of cover needed based on your turnover and risk profile.

• Identify policies that may be tax deductible.

• Help integrate insurance costs into your financial forecasts.

• Work with brokers to ensure the policies align with regulatory and accounting requirements.

Their advice ensures you are adequately protected without overpaying for unnecessary cover.

Are insurance premiums tax deductible

Most business insurance premiums are allowable expenses, meaning you can deduct them from your taxable profits.

This includes:

• Employers’ liability insurance.

• Professional indemnity insurance.

• Public liability and property insurance.

However, life insurance and personal cover that does not relate directly to business activities are not deductible. Always check with your accountant before claiming any insurance costs as expenses.

Final thoughts

The right insurance provides essential protection for your limited company, covering everything from employee safety and professional mistakes to property damage and cyber threats. Some types of insurance, such as employers’ liability, are required by law, while others are vital for financial security and client trust.

Every company’s needs are different, so it is important to review your risks and speak to a professional adviser before choosing your policies. With the right mix of cover in place, your business can operate confidently, knowing it is protected against unexpected events and potential legal claims.