What does business insurance NOT cover? An everything you need to know guide

When it comes to business insurance, one size definitely doesn’t fit all. And trying to find the best option for your business can feel like trying to find your way through a maze. You know you need cover, but do you really know what’s normally covered and what's not? 

To help you make your decision easier we’ve pulled together what isn’t often included so you can opt for extras (if needed) and organise your next renewal with confidence. So, let’s dive right in.

Why is it important to know what isn’t covered on a business insurance policy?

Knowing what your business insurance doesn’t cover is, arguably, just as important as knowing what it does. This information can help prevent any nasty surprises if you have to make a claim, making sure that you’re covered for all different types of events. 

Here are some of the main reasons why it’s important to know what isn’t covered by your insurance policy:

Avoid unpleasant surprises 

Imagine you’ve just experienced a large loss or damage to your business property, and you confidently file a claim, only to find out that the incident wasn’t covered by your insurance policy. This scenario can be financially devastating for a small business, especially if you’re relying on that payout to recover and continue your operations.

Knowing in advance what your policy excludes allows you to plan better and take the steps needed to reduce those uncovered risks.

Identifying gaps in cover 

By carefully reviewing your insurance policy, you can identify any gaps in your cover. For example, if your business is located in an area prone to flooding and your policy excludes flood damage, you may need to speak to your insurance broker to see if other policies could be obtained that include this.

This kind of proactive approach really helps in making sure you’re not caught off guard by any event that can badly impact your business. 

Improving your risk management 

Awareness of your policy's exclusions is also a important part of your overall risk management strategy — but how? 

Well, if you know that certain risks aren’t covered, you can implement measures to help minimise those risks. For example, if your policy excludes cyber attacks and your business operates online, it might be a good idea to invest in cybersecurity measures to protect your business data.  

When you compare business insurance quotes with Bionic, we’ll talk you through all the policy options to make sure you’re happy with your cover. 

Looking to secure your business online? Read more about cyber insurance.

What are some general business exclusions? 

Let’s get into the nitty-gritty of business insurance exclusions — these are the scenarios and incidents that your insurance policy just won’t cover, no matter what.  

Acts of terrorism 

While it’s not something any of us like to think about, the reality is acts of terrorism can and do happen.  

Unfortunately, most standard business insurance policies often don’t cover damages caused by such events. If you’re in an area that’s considered a higher risk, you may want to look into purchasing terrorism cover. 

War and nuclear events 

Here’s to hoping we never have to deal with this one, but it’s worth mentioning: damage caused by war or nuclear events is typically excluded from business insurance policies. These types of events are considered incredibly high-risk and unpredictable, making them nearly impossible to insure under standard policies.  

If you think there’s a potential risk, specialised insurance might be possible, though it’s generally rare for most businesses.  

Illegal activities 

This one might sound like a no-brainer, but it’s important to know that any loss or damage resulting from illegal is activities is unlikely to be covered.  

This includes any fines, penalties, and losses due to criminal activity by you or your employees. If there’s any illegal activity going on, your insurance company most likely won’t be footing the bill.

What are some industry-specific business insurance exclusions? 

While general business insurance exclusions apply to most industries, each sector also faces its own set of unique risks that can lead to specific exclusions in policies.  

Understanding these industry-specific exclusions can help you better protect your business by identifying areas where you might need some additional cover.  

Remember: It’s always important to double-check the wording of your policy to see what is and isn’t covered. If you’re not sure, get in touch with your insurance provider. 

Let’s explore some of the most common exclusions you might see across various industries.

Construction 

• Defects in workmanship - in the construction industry, quality of work is important. But it turns out, many standard business insurance policies can exclude cover for defects in workmanship. This means if there’s a flaw in the way something was built, your policy won’t cover the costs to repair or replace it. Ensuring your team adheres to high standards and performs regular quality checks can help reduce these risks and ensure you’re always delivering the best job.  
• Incomplete work - imagine starting a project but being unable to complete it due to unforeseen circumstances. Unfortunately, most standard policies don’t normally cover the cost associated with incomplete work. This kind of exclusion can leave your business vulnerable if projects are delayed or halted, even if it’s not your fault.  
• Faulty designs - faulty designs can be an exclusion in construction policies.  If a design flaw leads to structural issues or other problems, fixing them can be incredibly expensive. If you’re involved in the design process, professional indemnity insurance should be a consideration. It’ll cover you for any errors or omissions in your designs, keeping your projects on track.  
• Contractual liabilities - when you sign a contract, you might be taking on more than you think. Standard insurance policies often exclude liability assumed under a contract. This means that any extra responsibilities you agree to might not be covered. 
• Make sure to review contracts carefully and consider any additional liability insurance you might need to cover any extra responsibilities. 

Retail 

• Shoplifting  - Theft from shoplifting can be a threat, but it’s often excluded from standard business insurance. The financial impact of shoplifting can be significant — in fact, losses from customer theft reached £1.8 billion in 2023. The financial impact of shoplifting can affect your bottom line. To protect against this, consider investing in good security measures like cameras and security staff to deter the likelihood of theft. 
• Employee theft - Employee theft can be just as damaging as shoplifting. Sadly, it’s not always covered by standard policies. Losses from dishonest employees can range from stolen inventory to miscalculated earnings from your POS systems. Regular stock inventory checks and proper training for employees cashing up after every shift is a good idea, especially if you suspect someone is stealing from you. 
• Spoilage - If you’re selling perishable goods, spoilage can be a concern. Power outages, equipment failures, or other unexpected events can lead to significant losses if your products spoil. Most standard policies won’t cover losses from spoiled goods caused by equipment failure or power outages. 
• Product recalls - Product recalls can be a nightmare, both financially and for your business reputation. If a product you sell is found to be defective or dangerous, the cost of recalling or replacing it can be astronomical — and standard insurance policies often won’t cover recall expenses.

IT & Tech

• Cyber attacks - In the tech world, cyber-attacks are a real threat. With the increasing reliance on digital platforms to modernise the way businesses work internally and consumer-facing, the risk of cyber incidents is higher than ever. In fact, 1.5 million businesses in the UK were hit with a cyber attack in 2023, costing the UK economy £30.5 billion. To protect your business from an attack, you should consider taking out a separate cyber insurance policy covering you for data recovery, legal fees and even public relations efforts. 
• Software bugs - Unexpected bugs and glitches can be a real headache for your business. They can disrupt services, lead to client dissatisfaction and often result in financial losses. Unfortunately, most standard policies exclude cover for issues related to software performance, but regular testing and quality assurance processes can help catch and fix bugs before they become a major issue.  
• Data breaches - Data leaks can cause serious harm to your business. In 2023 alone, the average cost of a data breach for small businesses was around £1,100, while it was £4,960 for medium businesses. Data breaches can lead to loss of sensitive information, legal penalties and even damage to your reputation. But don’t let it derail your business — get the cover you need.

Hospitality and tourism

• Food contamination - Running a restaurant or a food business? Food contamination can be a big worry. An incident can lead to a serious health risk for customers and significant financial losses for your business. Most standard business insurance policies exclude contamination risks, but you can usually buy specialist insurance if you’re making and preparing food. Having sufficient business insurance in hospitality – like for cafes or takeaways for example, can help cover medical expenses, legal fees, and business interruptions, so you can keep serving up customers with confidence! 
• Event cancellation - In the events and tourism industry, cancellations can hit hard. Whether it’s due to bad weather, vendor issues or other unforeseen circumstances, the financial impact on your business can be significant. Standard policies usually exclude cover for event cancellations, so it’s worth looking into specialist insurance if you need it.  
• Bed bugs - No one wants to deal with bed bugs, but they can be a real concern for those running a business in the hospitality industry. An infestation can lead to many negative reviews, loss of business, and significant extermination costs. You should check your policy wording to see if this type of infestation would be covered in the event you had to close.  

Get your business insurance sorted with Bionic 

By now, you should have a clearer picture of what your standard policy might not cover and the additional protections you might need to consider. Understanding these exclusions helps you avoid any unpleasant surprises and ensures your business is prepared for anything life throws your way.  

Get in touch with us today by starting a quote online or head over to our business insurance guides to find everything there is to know about sorting your business.