Liability insurance explained

Liability insurance for a small business can be a difficult concept to get your head around. Put simply, liability insurance protects the purchaser from the risk of lawsuits and other claims sustained by a person or small business. In other words, liability insurance protects you in the event that you are sued for something that is defined by the insurance company as within the area of coverage. However, intentional damage sustained by others is often not included in the coverage range of liability insurance – check your policy for more details. There are three rough categories of liability insurance: public, product and employer. Many organizations insure themselves with public liability insurance to reduce the potential burden of lawsuits. Typically, public liability insurance covers you in case of lawsuits falling within your insurance company’s definition of a ‘claim’ arising from injury or property damage as a result of your direct or even indirect action, although your policy should be checked to see which claims are paid, as these do vary.

In many jurisdictions, public liability insurance is compulsory for certain entities and the laws of your jurisdiction should be checked to ensure that your activities fall within their bounds. The cost of public liability insurance premiums can be high, but the cost of defending yourself against a claim can be even higher, so not taking out public liability insurance can be considered a gamble, even for the most prosperous of businesses. The cost of a claim against an uninsured small business could even result in the business’s closure. Product liability insurance can cover businesses as a result of lawsuits brought about as a result of damage sustained through the use of a business’s products. In some cases, taking up product liability insurance is mandatory, although in many instances, it is optional. Finally, employer liability insurance exists to cover employers in situations where an employee is injured during the course of his or her employment. In the United Kingdom, employer liability insurance is compulsory for most businesses (exceptions exist where the only employee owns the company or in the case of unincorporated family businesses).