Oh, insurance – in this modern era, there are so many things that can go wrong, and such a massive superstructure of corporations seeking to profit from it. But with all the insurance options available, how can you really know what is worthwhile to invest in and what is a waste of money? In this article, I’m going to cast a spotlight on liability insurance – its history, practice and cost – and let you make your own decision on whether it is right for you.
Liability insurance, unlike many other forms of insurance, does not result in a payout of a claim to the insured. Instead, it is designed to provide financial recompense to a third party as a result of a problem with their service, whether intentional or accidental. There are three primary categories of liability insurance, each with their own rules that govern how policies are written and paid.
The most common form of liability insurance is public liability. These are policies that protect businesses from claims by individuals as a result of the practices or property of the business. Some examples include malpractice insurance for doctors and generalized liability for bars, clubs and theaters. Essentially, these policies exist to mitigate the potential damage cause by a legal ruling against the business. Some businesses are considered a greater liability risk than others, including bars, sporting arenas, and areas where mechanized equipment is being used, and will demand a higher premium.
The second most common liability insurance is product liability. For manufacturers and producers, if a product is determined to have cause actionable harm to a consumer, this insurance will serve to mitigate damage from lawsuits. Some countries require all manufacturers to carry product liability insurance, but the United States does not.
The third form of liability insurance is employer liability, also known as Workman’s Comp in the United States. If an employee is injured at the workplace, these policies exist to provide financial renumeration to the injured worker, assuming that the workplace is kept in a condition that is considered safe and insurable. This has the dual benefit of protecting the business owner from claims by making the workplace safer for the employees. In many countries, all of the above liability insurances are bundled together in an “umbrella” policy, but may also be purchased separately.
So do you need liability insurance for your small business? It’s hard to say. The premiums for public liability are often quite high, depending on the nature of the business. With most insurances the question comes down to balancing risk and reward. I would recommend employer liability to any company with more than one employee. These policies are the most affordable and demonstrate a commitment to the health of your business. If you are not involved in manufacturing or the production of goods, product liability is probably not necessary. As for public liability, this is the toughest to tell. If your business is in the business of serving customers, you should strongly consider it. Especially if there is alcohol involved. The consequences of a legal claim can be immensely destructive to a small business with no “safety net” to absorb them.
