Some 11% of SMEs are unaware that employers liability insurance is a legal requirement in any scenario, a study shows.
A survey of 1,507 SMEs from Aviva found a quarter of SMEs wrongly believe this is only legally required if a business has more than one employee.
Using figures from Health and Safety Executive, Aviva said employers without the insurance carried the "risk of fines of £2,500 for every day the business is not properly insured".
The study also reported that SMEs were unsure of all other types of business insurance. A third (29%) were confident they had the right cover, but 12% admitted they had no business insurance at all.
Aviva found firms' priorities for insurance differed according to their length of time in business. While a quarter of SMEs operating for less than a year had no insurance, only 5% of more established businesses (operating for 8-10 years) had none.
Angus Eaton, managing director of commercial lines at Aviva, said: "Clearly SMEs need a strong understanding of their legal obligations and how they can protect their business and employees to keep it trading. One claim without adequate cover could easily be enough to put severe financial pressure on an organisation or even close it down completely."
Employers' liability insurance protects employers from liabilities such as staff illness or injury at work.
In terms of other employer obligations such as workplace pensions, the survey found a third of employers had set up auto-enrolment, but one in five (21%) had not done so even though they were aware of this obligation. More than a third of micro employers (36%) felt they were not required to set up auto-enrolment for employees.