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How to start a retail business from home: Business insurance

Gerry Donnachie, who heads up the business underwriting team at AXA Insurance, answers your insurance dilemmas – this month he’s tackling business contents insurance

Question:

I’m starting a  retail business and am at the stage of buying in stock.

My business partner and I are thinking about business contents insurance, but we don’t know what we should cover, or even if it’s worth it right now. We’re currently home-based but may rent premises as well.

Do we need business insurance now?

Startups.co.uk reader

Answer:

Once you turn your home into a workplace, your home insurance may not be enough anymore.

You already have computing devices, a desk and stock in your home – so you’ll need to take out a separate business insurance policy to cover these items.

You’ll also be able to insure your business contents and equipment at the same time –things like PCs, printers, laptops, mobiles, display stands, advertising materials and so on.

You may also have people coming to your house/office for deliveries or business meetings, so most small retail businesses also have public liability cover, whether they operate a shop front or not. This is because as soon as someone steps into your business premises (presently your home), you become liable for accidents, injuries and damage to their belongings.

When you’re getting a quote, you’ll also be able to add cover for your goods when out for delivery (’goods in transit’), whether you use your own vehicles or someone else’s.

Business contents insurance: How much is too much?

The big questions are – what business contents should I cover and how much cover is enough?

The sum you choose should be based on how much it would cost you to replace stock and equipment you typically have on premises.

Bear in mind that an AXA policy includes a free 30 per cent stock cover increase for peak times of your year (nominated by you). So, you tell us the dates when you’re busiest (and have more stock stored) – say, 30 days before Christmas, before a local festival or during the summertime.

Remember that you are also covering the cost price of your stock rather than the sales price. If you quote for the sales price, you’ll be paying too much!

Business contents insurance: Thinking beyond stock

Once you have your business contents and stock covered, you might also need to consider other losses you’d suffer during a flood, fire or disruption to your business. That’s likely to be damage to goods, but it could also close your business while you get back on your feet.

An optional extra you can take out when getting your quote is business interruption cover. This will cover running costs like basic overheads (rent, rates, loan repayments, utilities), staff wages and loss of profit in the interim.

This can be a vital safety net, especially for small businesses that often have slim savings cushions to see them through. Without this cover, credit cards and overdrafts are too often the only recourse people have when disaster strikes.

You also need to think about…product liability

When you get a public liability quote, you will also see ‘product liability cover’ is part of the policy. As a retailer, it is highly likely this would be packaged as part of your policy – but it’s a good idea to check.

Product liability covers claims for injury or property damage caused by a faulty product – that may include legal fees and compensation costs.

It’s worth noting that the cover limit you see during the quote (say, £2 million) does not mean that the insurer would pay out £2 million per incident or person affected but would be the maximum the insurer would pay for all incidents related to a defective products in any one period of insurance.

Manufacturers carry the heaviest responsibility when things go wrong with a product, but often multiple companies are sued when a case goes to court. Retailers can also be held to account. As government guidance puts it: “You must not sell any product which you know, or should know is unsafe”.

There is no upper limit on compensation cases like this – so death, injury, loss/damage to property can all be included in the final reckoning.

Product liability insurance is particularly important if:

  • Your business name is on a product (own-brand)
  • You customise, change or service a product before selling on
  • You import products from outside the EU

Some general advice on avoiding claims is to make sure you know who the manufacturers of your goods are, record or keep a log of where you get your stock from including shipment numbers and batch numbers, provide customers with any information supplied by the manufacturer, and pass any complaints to the manufacturer and your local Trading Standards Office.

Other business insurance covers you may need

As your business grows, you can add other covers to your business insurance policy.

Common covers retail businesses like yours need are:

  • Employers’ liability insurance: this is legally required for businesses that employ staff (in most cases).
  • Loss of money: covers cash kept for your business (on your premises or in transit) if this is part of your business model.

You can get a quote for a policy on the AXA website or call AXA’s advisers on 0330 159 1520. Lines are open Monday to Friday, 8am to 8pm, and Saturday, 9am to 2pm (calls may be recorded and monitored).