First Contract, Right Cover: A 2026 Insurance Reality Check for UK Founders

Insurance is the least glamorous part of signing your first client. It sits somewhere between the contract redlines and the celebratory coffee, and it is easy to treat as a box-ticking exercise. That is a mistake. For UK founders, the insurance schedule can decide whether a contract gets signed at all, and whether a small mistake turns into a company-ending bill.

At Start Network, the founders we speak to tend to fall into two camps: those who have bought every policy going and those who have bought none. Both can end up overpaying. The trick is to separate what the law demands from what the client demands, then buy only the cover that fills the gap.

The legal floor is lower than you think

Let us split this cleanly. There is cover the law requires, and cover your client requires. They overlap, but they are not the same thing.

In the UK, employers' liability insurance is generally compulsory as soon as you take on an employee. There are limited exemptions, including some sole directors who own most of the company, but the safe assumption is: hire someone, buy the policy. Motor insurance is required if you use vehicles for work. Professional indemnity can be mandatory in certain regulated sectors, such as some financial advice. For most early-stage startups, public liability, professional indemnity, cyber cover and directors' and officers' insurance are not legal requirements in themselves.

That does not mean you can ignore them. It means the pressure usually comes from somewhere else: a client contract, an investor, a landlord or a procurement portal.

What clients ask for, and why it matters

A large client may ask for public liability of £2m or £5m. A consultancy client may insist on £1m of professional indemnity. A technology buyer may want cyber cover. An investor may want directors' and officers' insurance before the first board meeting.

These demands are often reasonable. They are also often copy-pasted from a template written for a much bigger supplier. Your job is not to nod along and buy everything. Your job is to read the insurance schedule in the contract before you sign it, then match your cover to the actual risk and the actual requirement.

Public liability: the client favourite

Public liability covers claims from third parties for injury or property damage. Think a client visitor tripping over a cable at your demo, or a contractor damaging equipment on a customer site. It does not cover you for giving bad advice or making a design mistake.

Many coworking memberships and accelerator programmes include limited public liability cover. Do not assume it follows you to a client site, covers temporary premises or extends to subcontractors. Check the certificate and the exclusions. If a client wants £5m and you have £1m, ask your broker about raising the limit rather than buying a second, overlapping policy.

One Manchester software founder nearly lost a contract because the client required £5m public liability and his policy was £1m. His broker increased the limit for a modest monthly increase. The lesson was not that he needed more cover everywhere. It was that he needed the right limit for that contract.

Professional indemnity: the one that protects the invoice

Professional indemnity, often called PI, covers claims that your advice, design, code or professional service caused a client financial loss. If you are a consultancy, agency, software studio or anything where the client is buying your judgement, this is usually the first policy to consider after public liability.

PI is normally claims-made. That means it responds to claims made during the policy period, not just work done during it. Ask about retroactive cover. If you switch insurers later, you want previous work to remain covered. A Bristol product design founder learned this the hard way. She delivered a retail project without PI, the launch slipped, and the client demanded £18,000 for lost sales. There was no insurer to call. She negotiated the claim down and settled, then bought a PI policy with retroactive cover before taking on the next contract.

Employers' liability: compulsory when you hire

If you employ anyone, employers' liability insurance is generally a legal requirement. Policies are usually written at £10m, although the legal minimum is £5m. You should display the certificate where employees can see it, or make it available electronically.

Do not assume everyone is a contractor just because you call them one. If you control how, when and where they work, the relationship may look like employment to a regulator or a tribunal. Get advice if you are unsure. And if a client asks for evidence of employers' liability, answer quickly. A missing certificate in a procurement portal can stall a contract for weeks.

Cyber: not just for tech companies

Cyber insurance covers things like data breach response, ransomware, legal costs and business interruption after an attack. It is not legally required for most startups, but clients are asking more often, especially where you hold customer data or access their systems.

A Leeds marketing founder was asked for cyber cover during a client audit because her team had access to the client's social accounts. She found a £1m policy for less than her monthly software bill. That does not mean every founder should buy cyber cover on day one. If you hold little data, have strong basic security and no client demand, it may wait. If you handle personal data, payment details or client systems, put it on the shortlist.

Directors' and officers': for boards and investors

Directors' and officers' insurance, usually shortened to D&O, protects directors and officers from personal liability claims arising from their management decisions. It is not generally a legal requirement for a private startup. It becomes relevant when you appoint a board, take outside investment or face a higher risk of claims from shareholders, regulators or competitors.

If an investor term sheet asks for D&O, read the wording carefully. Some policies exclude the very claims founders assume are covered. Ask whether the policy covers the company as well as the individuals, and check the excess.

How to avoid overpaying

Start with the contract, not the broker. Pull out the insurance schedule and make a list of required covers and limits. Then check what you already have through coworking spaces, professional bodies, accelerators or existing policies. Ask for quotes only for the gaps.

Match limits to the requirement. Do not buy £10m of public liability because it sounds safer if the client asked for £2m. Check the excess: a cheap policy with a £5,000 excess may be false economy for a small claim. Ask about retroactive PI cover if you are switching. And revisit your cover when you hire, sign a new type of client, start handling new data or expand abroad.

A good broker who understands early-stage UK companies is worth more than a comparison site. Tell them your stage, your sector and the contract wording. Ask what you can safely leave out. The right answer is rarely every policy at maximum limit. It is usually a small, deliberate stack that satisfies the law, wins the contract and protects the downside you can actually afford to care about.

This is general information, not legal or insurance advice. For your specific circumstances, speak to a regulated broker or adviser.