No one can predict what’s around the corner, in either their personal or business lives. It’s important to explore how to protect yourself and your business from the unexpected; how to decide which insurance cover you need and where to go for help and advice.
What is insurance?
Insurance is a financial arrangement between you and an insurance company that protects you and/or your business from the unexpected. It’s a tricky one because, on the whole, when you take out insurance you’re shelling out cash for something that might never happen. But if it does, the right cover could save you thousands.
There are many types of insurance that can cover you from things such as loss, theft, damage to possessions, unemployment, health and death.
Useful insurance terms
Cover | What the insurance company is prepared to protect you from. |
Policy | The document that provides all the information about your insurance. |
Premium | The amount you pay, typically in monthly instalments, for that cover. |
Excess | The amount of money you'll have to pay when you make a claim. The amount varies depending on your policy. |
Assess what you can afford and what you need
First off, answer the following four questions:
What cover do I already have?
If you’re a homeowner, chances are you’ll already have life insurance (that will pay out in the event of your death), contents insurance (that will protect the contents of your home from theft or damage) and buildings insurance (which protects the actual building you live in).
If you have contents insurance, you could already have cover for your computer or phone. But if you’re working from home and using more specific business machinery, this will, most likely, not be included.
In either case, you must let your insurance provider know that you’ll be using your home as a business premises so they can adjust your insurance accordingly. Otherwise, they may not pay out if you have to claim.
How much can I afford to pay?
This is crucial in deciding your insurance realistically. Some policies, such as home contents, offer lower monthly premium payments, while others, such as critical illness cover, can be much more.
Do I have dependents?
Dependents are people who rely on your salary as their primary source of income. This could mean children, a partner who can’t or doesn’t work, or elderly parents or grandparents.
What impact would loss of your salary have on them? How would you continue to support them?
What insurance will I actually need to start up?
This will depend on your personal circumstances. That’s why it’s important to understand how each insurance protects you. You’ll most likely be earning less when you start out, so won’t have as much spare cash to shell out on insurance.
Review your insurance needs regularly as your income grows or as your situation changes.
Identify the types of insurance available
Life
If you have a mortgage, you should already have life insurance to cover the cost of the mortgage in the event of your death. It’s important because it can help to ensure any dependents you have aren’t left in debt or without an income.
Health
If you’re unable to work and forced to wait for NHS treatment (which can often take months), taking out private health insurance will mean you can be seen and treated quickly, minimising the time you take off work.
Critical illness
This is a longer-term insurance that covers you for a variety of critical illnesses (such as cancer, heart attack or kidney failure). Each policy has exclusions, so always check what’s covered.
Public liability
Although public liability insurance isn’t compulsory for every business, there are certain types of work where it’s essential. Public liability covers your business if you are interacting with members of the public and someone gets injured either at your place of work or while you carry out your work.
This is essential for people such as personal trainers or yoga instructors for example. But it will also apply if you work from home and hold meetings with clients there.
Personal accident
This covers you if you have an accident resulting in permanent or total disablement, loss of use of a body part (such as a limb) and death. It is different from both private health insurance and life insurance in this respect.
Employee liability
Unless you’re going to be hiring other people as soon as you become self-employed, you won’t have to worry about this insurance. If you do hire staff in the future, you’ll need this insurance to protect your company against compensation claims from staff injured at work.
Income protection
This will protect you if you are unable to work for some reason. When you make a claim, the policies with cheaper premiums can make you wait three months before paying out. Therefore, it’s a good idea to keep a three-month reserve on hand. You can, of course, choose a more expensive policy that will pay out straight away.
Business machinery
This covers any equipment you need to carry out your work that isn’t covered by a contents insurance policy (if you’re working from home).
Where can I get help?
You can also consult an independent financial adviser, of which there are two types:
Independent: Someone who can offer advice and sell products from any provider in the market.
Restricted: Someone who is restricted in the advice they can give you. Typically it means they will offer you products and services from a restricted number of providers, so you might not be offered the best market deals.
Before you book an appointment, always check what type of financial adviser they are. Both will charge you a fee for their advice. This could be a fixed amount or an hourly charge (typically from £75 to £150). There are various websites you can use to find a financial adviser, such as Unbiased.co.uk. Alternatively, the Citizen’s Advice Bureau may also be able to help.
Let's recap!
Assess the insurance cover you might need.
Identify the types of insurance available.
Discover sources of help and advice.
In the next chapter, you'll identify the rules and procedures to be aware of:which ones apply to your business, which ones are required by law, and which ones will simply improve your reputation.
