Insurance might seem like nothing more than a cost – but a limited company director needs to have certain insurance legally in place. And some can be a benefit to you and your company’s finances!
Protecting you and your business is essential! Because if anything goes wrong then it could not only hit you in the pocket it could also seriously impact your life away outside your business.
Limited company directors require mandatory commercial insurances (which we look at below). But many limited company directors don’t have this.
Indeed, that’s no surprise as a lot of UK limited companies don’t have mandatory insurance. Research shows 40% don’t have employers’ liability insurance. Another survey last year revealed 74% of small business owners are underinsured in some way.
And researchers revealed earlier this year that only half of the business directors questioned ever review their insurance. That could mean you’re not buying the right cover – or paying too much for what you need! So, don’t overlook your requirements.
It’s wise for limited company directors to have a blend of insurances. You’ll need commercial and personal policies to protect your business assets. And you also need to take out policies to meet legal obligations as well as for your own health and income. We’ll take a look at those policies you should be thinking about.
What insurance does a limited company director need?
There are some core products limited company directors should have in place. These are a mix of compulsory commercial and specific protections for directors:
- Employers’ Liability Insurance
- Directors’ and Officers’ Liability Insurance
- Professional Indemnity Insurance
- Public Liability Insurance
Other insurances are not compulsory, such as company director income protection. But they are desirable because they cover you for anything that might go wrong. That includes losing income due to an accident to covering you for medical care.
Employers Liability Insurance
This is a legal requirement under the Employers’ Liability Act 1969. Your business must have this in place, and as a director it’s important you check and that the liability cover is sufficient.
It protects your employees if they get injured or become ill while working for your company. It covers damage, compensation costs and legal fees that any current or ex-employee is entitled to through illness or injury from their work. The policy pays the legal costs incurred when an employee claims compensation for a work-related illness or injury.
As well as full and part-time employees, Employers’ Liability Insurance covers any self-employed contractors you hire as well as temporary staff, apprentices and volunteers, such as people on work experience or training schemes.
Directors’ and Officers’ Insurance
This type of management liability insurance protects directors, officers and Limited Liability Partnership (LLP) partners. The insurance cover can step in if any of the company’s leaders are accused of wrongful acts. It can include:
- Negligent errors
- Breach of duty
- Defamation
- Health and safety failure
- Breach of company rules and regulations
Anyone who encounters a director could attempt to sue them, which includes employees, shareholders, creditors, customers and competitors.
But this cover doesn’t cover fraud, intentional criminal acts, illegal remuneration or uninsurable fines. Also, penalties and fines imposed by regulatory authorities, such as HMRC or local authorities are not covered.
Professional Indemnity Insurance
This cover protects you if your company offers consultancy and advice as well as service providers.
It’s not mandatory but wise if you’re a consultant, accountant, IT contractor or a surveyor, for example. Professional Indemnity Insurance pays for your legal defence and any compensation you if a client claims you made a mistake, gave bad advice or provided a poor service.
Claims can run into tens of thousands of pounds, so it’s worth taking out cover if you want peace of mind. It means if someone makes a claim you should get the legal lhelp and financial protection you need.
Some professional bodies – such as the Royal Institution of Chartered Surveyors (RICS) – require members have PI in place as a condition of membership.
Public Liability Insurance
If a ‘third party’ – a member of the public – is injured or their property is damaged because of your business activity this covers your costs.
It includes both compensation payments and legal fees if someone makes a claim against your company.
Any business can face a public liability claim, so don’t think it’s not worth taking out. For example, a photographer could face a claim if someone trips on a bag of equipment while they’re out taking pictures. Or a builder could break a window while carrying out work on a property or neighbouring property.
Having public liability insurance means any mishap is covered financially by the insurance company. Whether that’s to pay for repairs and legal expenses or compensation and legal costs.
Director Protections
As well as the main company director and commercial insurance policies, there are other specific protections for directors. Some of these can be of financial benefit to directors and, in some cases, the company. These include:
- Company Director Income Protection: This will replace up to 80% of your income – including your PAYE salary and dividends – if you can’t work due to an accident or illness.
- Private Medical Insurance: Your limited company can pay for this cover, which ensures quick access to private medical care. This is a taxable Benefit-in-Kind and you must report the premium value on your P11D form. Your company must pay Class 1A National Insurance (NI), too.
- Relevant Life Insurance: Life insurance is always a difficult discussion as it only pays out on your death. But on the positive side, it is a tax-efficient death-in-service policy. Your company can pay your life insurance as a business expense, which saves on personal tax and NI. In can potentially reduce your corporation tax.
What to do next
If you have overlooked any mandatory insurance cover, then our advice is to sort that out today. You could face serious problems if something happens and you’re not covered.
Before speaking to an insurance company, you can always speak with an accountant. Our team can explain how each cover can benefit you and your business. Contact us today for a chat.
