What Insurance Does a Limited Company Need

At Towerstone Accountants we provide specialist limited company accountancy services for directors and owner managed businesses across the UK. We wrote this guide for people running a company who want clear answers on tax, payroll, Companies House filing duties, and day to day compliance without jargon. Our aim is to help you understand your responsibilities, reduce the risk of penalties, and know when to get professional support.

Insurance is one of those areas many limited company directors only think about when something goes wrong. I regularly speak to business owners who assume insurance is optional, overly expensive, or only relevant once a company reaches a certain size. In reality, insurance is a core part of running a limited company responsibly, and in some cases it is a legal requirement rather than a choice.

In this article I will explain what insurance a limited company legally must have, what types of cover are strongly recommended, and how to decide what level of protection is appropriate for your business. I will also cover common misconceptions, typical mistakes I see, and how insurance fits into wider risk management. By the end, you should have a clear framework for deciding what insurance your company genuinely needs rather than guessing or overbuying cover.

Why insurance matters for limited companies

One of the advantages of operating through a limited company is limited liability. This often leads directors to believe their personal risk is minimal. While limited liability does offer protection, it does not remove risk entirely.

Insurance exists to protect:

• The company’s finances

• The director’s personal position in certain scenarios

• Employees and customers

• Business continuity

Without appropriate insurance, a single claim or incident can wipe out years of progress or even force the company to close.

Insurance that a limited company is legally required to have

There is only one type of insurance that most limited companies are legally required to hold, but it is an important one.

Employers’ liability insurance

If your limited company employs anyone, even part time or casually, you are legally required to have employers’ liability insurance.

This applies if you have:

• Full time employees

• Part time staff

• Temporary workers

• Apprentices

• Casual labour

The purpose of employers’ liability insurance is to cover claims made by employees who are injured or become ill as a result of their work.

Key points include:

• Minimum cover is £5 million

• The policy must be from an authorised insurer

• Proof of cover must be available

• Penalties apply if you do not have it

Fines can be substantial, and enforcement is taken seriously.

There are limited exemptions, for example where a company employs only close family members, but these must be considered carefully.

Insurance that is not legally required but strongly recommended

Beyond employers’ liability insurance, most other policies are not legally required but are commercially essential.

Public liability insurance

Public liability insurance protects your company if a third party suffers injury or property damage as a result of your business activities.

This might include:

• A client slipping at your premises

• Damage caused while working on a customer site

• Injury linked to your products or services

For many businesses, particularly those interacting with the public, public liability insurance is considered non negotiable.

It is often required by:

• Clients

• Landlords

• Event organisers

• Local authorities

Professional indemnity insurance

Professional indemnity insurance is designed to protect businesses that provide advice, services, or professional work.

It covers claims arising from:

• Negligence

• Errors or omissions

• Breach of professional duty

• Incorrect advice

This is particularly relevant for:

• Consultants

• Accountants

• IT professionals

• Designers

• Marketing agencies

Even where it is not legally required, it is often contractually required by clients. Without it, you may be unable to win or retain work.

Directors’ and officers’ insurance

Directors’ and officers’ insurance, often referred to as D&O insurance, protects the personal position of company directors.

It covers claims made against directors personally for alleged wrongful acts in their role as a director.

These claims might come from:

• Shareholders

• Employees

• Creditors

• Regulators

While limited liability offers protection, directors can still be personally exposed in certain situations, particularly where allegations of mismanagement or breach of duty arise.

As businesses grow, D&O insurance becomes increasingly relevant.

Product liability insurance

If your limited company manufactures, distributes, or sells products, product liability insurance is essential.

It protects against claims where a product:

• Causes injury

• Causes illness

• Causes damage to property

Product liability insurance is often bundled with public liability insurance, but it should always be checked explicitly.

For ecommerce and retail businesses, this cover is particularly important.

Business contents and property insurance

If your company owns or uses physical assets, insurance should be considered to protect them.

This may include:

• Office equipment

• Computers and servers

• Tools and machinery

• Stock

• Fixtures and fittings

Cover can be arranged for:

• Business premises owned by the company

• Rented offices or units

• Home offices

The level of cover should reflect replacement cost rather than original purchase price.

Business interruption insurance

Business interruption insurance is often overlooked but can be crucial.

It provides cover for lost income and ongoing costs if your business is unable to operate due to an insured event such as fire or flood.

It can help cover:

• Lost profits

• Rent and utilities

• Wages

• Temporary relocation costs

For businesses reliant on premises or specific equipment, this can be the difference between recovery and closure.

Cyber insurance

As more businesses operate digitally, cyber insurance has become increasingly relevant.

Cyber insurance can cover:

• Data breaches

• Ransomware attacks

• System outages

• Regulatory fines

• Customer notification costs

Even small limited companies can be targets, and the financial impact of a cyber incident can be severe.

Insurance considerations for different types of limited companies

Insurance needs vary significantly depending on the nature of the business.

Service based companies

Service businesses often focus on:

• Professional indemnity insurance

• Public liability insurance

• Cyber insurance

Physical asset cover may be less important, but reputational and financial risk from claims is higher.

Construction and trades

Construction companies typically require:

• Employers’ liability insurance

• Public liability insurance

• Contractor all risks insurance

• Tools and plant cover

Insurance is often a prerequisite for winning contracts.

Ecommerce and retail companies

Retail businesses usually need:

• Public and product liability insurance

• Stock insurance

• Cyber insurance

• Business interruption cover

Claims relating to products can be particularly costly.

How much insurance cover should a limited company have

There is no single correct answer. Cover levels should reflect the scale of risk rather than the size of the company.

Factors I look at include:

• Nature of the work

• Client expectations

• Contractual requirements

• Value of assets

• Potential worst case scenarios

Underinsuring can be as dangerous as having no insurance at all.

Common insurance mistakes limited companies make

Over the years I see the same mistakes repeatedly.

Assuming insurance is optional

Some directors treat insurance as an unnecessary cost until they are forced to engage with it.

Buying the cheapest policy

Cheap policies often come with exclusions that make them ineffective when a claim arises.

Not reviewing cover regularly

As businesses grow, insurance needs change. Policies that were suitable in year one may be inadequate in year three.

Failing to disclose changes

Insurers must be informed of changes such as new activities, additional staff, or higher turnover. Failure to do so can invalidate cover.

Insurance and contractual obligations

Many limited companies are contractually required to hold specific types of insurance.

Common requirements include:

• Minimum public liability limits

• Professional indemnity cover at set levels

• Evidence of insurance before work starts

Failing to meet these requirements can lead to contract termination or refused payment.

The cost of insurance for a limited company

Insurance costs vary widely depending on risk profile.

Factors influencing cost include:

• Industry

• Turnover

• Claims history

• Number of employees

• Level of cover

While insurance is a cost, it should be viewed as protection rather than an expense to minimise at all costs.

How I approach insurance conversations with clients

When discussing insurance with clients, I focus on understanding risk rather than selling policies.

I ask questions such as:

• What could realistically go wrong

• What would the financial impact be

• Which risks can be transferred through insurance

• Which risks must be managed operationally

Insurance works best as part of a wider risk management approach rather than a tick box exercise.

When to review your company’s insurance

Insurance should not be set and forgotten.

I recommend reviewing cover:

• Annually

• When turnover increases significantly

• When hiring staff

• When taking on new contracts

• When changing business activities

Regular reviews help ensure cover remains appropriate and effective.

Final thoughts

Insurance is an essential part of running a limited company responsibly. While only employers’ liability insurance is legally required in most cases, relying solely on the minimum can leave significant gaps.

In my experience, businesses that take insurance seriously sleep better at night, make more confident decisions, and recover faster when problems arise. The aim is not to insure against every possible risk, but to protect the business from events that could otherwise be catastrophic.

If you are unsure what insurance your limited company needs, take advice early. A clear and tailored approach will always be more effective than guesswork or last minute decisions.

You may also find our guidance on Can I employ family members through my limited company and What is business insurance helpful when exploring related limited company questions. For a broader overview of running and managing a company, you can visit our limited company hub.