With so many aspects to consider when running a building business, and a wide range of insurance types out there, with different names and covering different events, it’s not easy to know what insurance you need to operate professionally and protect yourself.
One of the insurance products often mentioned is product liability insurance, but there are several other covers to consider too.
This FAQ looks at some of the key insurance types for builders and tradespeople, starting with product liability and expanding to other essential covers.
If you are in the building industry, you will know that there are all sorts of things which you must do to operate professionally. This includes finding appropriate insurance to protect your business from a range of risks.
Having the right insurance in place can safeguard your business against potentially crippling costs arising from accidents, injuries, damages, or claims of negligence.
In certain circumstances you are legally required to have insurance.
If you employ anyone, even part-timers or trainees, you must have employers’ liability insurance. This is designed to protect your business if a current or former employee suffers injury or illness as a result of working for you. You can be fined £2,500 per day if you don’t have insurance in place.
Even if you don’t have employees, there are other crucial situations in which you should consider insurance to protect yourself and your business. These include:
- Public liability: where you may come into contact with members of the public or clients while working.
- Professional indemnity: when you provide professional advice to clients.
- Tools insurance: protecting against the possibility of theft, loss or damage to your work tools.
Public liability insurance is essential for builders and is designed to protect your business if something you or your business does causes someone harm or damages property.
Unfortunately, claims like these are common in the building trade. Examples include:
· a passer-by tripping over tools and breaking an ankle
· paint being splashed on a client’s vehicle
· accidental damage caused to a client's property while you are working
Even seemingly small incidents can quickly amount to an order to pay damages, compensation and legal fees of thousands or hundreds of thousands of pounds.
Be aware that many larger clients will insist you have public liability insurance as part of your contract with them. Trades associations and other professional bodies can also request it as a term of membership.
Product liability insurance is similar to public liability insurance. However, as the name suggests, it specifically relates to products you make, supply, or install – for example:
· a boiler
· a heating system
· fitted kitchen units
· an electronic system
This insurance is designed to protect you and your business if a product you have supplied or installed causes damage to property or harms someone after it has been installed or handed over to the client.
Product liability claims are common and can quickly add up to thousands or hundreds of thousands of pounds – for example:
· if a faulty boiler installation causes a flood in a client’s property
· if sub-standard electrical work causes a fire
· if a client suffers physical injury due to a faulty product installation which prevents them from working
If you don’t have insurance, you might have to pay the damages and costs claimed (including legal fees). If you can’t pay, your business and assets may be at risk.
It doesn’t matter how your business is set up, whether you operate as a sole trader, a limited company or a partnership, you should consider which insurances you need, including product liability.
The type of business structure may have a slight impact on the cost of the insurance, but not on the fundamental need to have it.
When calculating your premium, the insurer will typically consider several factors including:
· how your business is set up
· how many employees you have (if any)
· where you operate
· what sort of work you do
· your previous claims history
This will depend on the sort of work you do and the possible size of any claims against you. For example, if you work on small domestic projects, you may need less cover than if you work on large-scale sophisticated commercial projects.
Most insurance companies will provide product liability cover of between £1 million and £5 million. If you’re in any doubt, speak to an insurance company which specialises in the construction industry.
Product liability insurance is not a legal requirement in itself. However, you may find some larger clients insist you have it as a term of your contract. If you don’t, you will be in breach of contract which has potential legal and financial consequences.
You may need to consider professional indemnity insurance if you offer professional advice as a part of your work. This could be advice about:
· design
· specifications
· materials
If your advice turns out to be negligent and causes your client financial loss, professional indemnity insurance will protect you if the client chooses to sue you.
The loss of your tools can stop your business in its tracks and may mean you cannot complete contracts or projects. If you cannot work, it can be difficult to find the money to replace your tools, leaving you trapped in a vicious circle.
With tools insurance in place, your tools will be replaced quickly, and you can get back to work.