Insurance is bought badly by most small businesses in one of two directions: nothing at all until something happens, or a bundled package nobody has read that turns out not to cover the thing that does.

The way to buy it well is to work out what would actually hurt, and insure that.

Start with what would close you

List the events that would genuinely threaten the business — not annoy it. For most small businesses that is a short list: the premises becoming unusable, being unable to trade for weeks, a claim from a customer or member of the public, the loss of equipment you cannot work without, or the loss of a person the business depends on.

Insure those properly first. Cover for smaller losses is a convenience and can wait; cover for the things that end the business is the point of the exercise.

The usual components

  • Assets — buildings, contents, stock, equipment, against fire, theft and damage.
  • Business interruption — income lost while you cannot trade. Covered separately, because it is the one most often missing.
  • Public liability — injury or damage to someone else caused by your business. Essential if the public comes to you or you go to them.
  • Professional indemnity — claims that your advice or work caused a loss. Relevant to anyone selling expertise.
  • Vehicles, on the correct basis for business use.
  • Goods in transit, if you move stock.
  • Cyber, increasingly, where you hold customer data or depend on systems.

Insure for what it costs to replace

The most common and most expensive error. Cover based on what you paid for equipment years ago does not replace it today.

Where a policy applies average, being under-insured means a partial claim is also reduced proportionally — so under-insuring by a third can reduce a claim by a third even when the loss is far below the sum insured. Review the values annually rather than renewing whatever was set at inception.

Read the conditions, once

Most declined claims are not disputes about whether the event happened. They are conditions that were not met: a required alarm not armed, a security specification not in place, a limit on cash held, a requirement to notify within a set period.

Read them once when you take the policy, and make sure the routine you actually follow matches. If a condition is one you cannot realistically meet, say so at the outset rather than discovering it at claim stage.

Tell them when things change

New premises, higher stock, a new activity, more vehicles, staff working from home. Cover is written against a description of the business, and a business that has changed materially may not be covered for what it now does.

General guidance, not insurance or financial advice. Policy wordings vary considerably; take advice from a licensed broker on your own circumstances.