Insurance is a contract in which an insurer promises to pay the insured party a sum of money if one or more specified events occur in the future, in return for regular small payments - known as premiums.
The purpose of insurance is to reduce your business' exposure to the effects of particular risks. These could include:
- damage to, or the loss of, physical assets such as your premises or equipment
- illness or death of key members of staff
- compensation claims against the business or its directors by employees or customers
- business interruption caused by external events such as terrorism
- volatility and cash flow pressures following an incident
Almost all businesses buy insurance, but the type and amount of cover purchased will vary according to the particular risks your business is exposed to and how much risk you are willing to personally bear.
Your business is legally obliged to buy certain insurances, such as employers' liability. For more information, see business insurance you must have by law.
Unless you are obliged or required to buy a particular insurance, it is up to you to decide whether to buy it and what limit of indemnity (protection) is appropriate.