What is public and product liability insurance?
A brief summary on why these voluntary policies could save your business considerable money in the long-term
What is product liability insurance?
If you manufacture or supply goods, there's always the possibility that your product could cause damage to a third party – that could be property or another person. A small defect could open you up to massive claims, so this cover is vitally important for product manufacturers.
Look for a policy that guards you against safety claims, manufacturing quality, spoilage and indemnity costs (medical bills and so on). And remember product liability is designed to cover you against unforeseen circumstances, if you simply make an inferior product or supply bad services then you're not going to be able to make a claim.
You can reduce your premiums by taking quality control measures beforehand, and you should make sure your insurer knows of any measures you've taken – it could affect your premiums.
What is public liability insurance?
Public liability insurance covers you against any claims made against your business – for example if you were held legally liable for personal injury, or for damage done to property. The insurance will also cover you for any legal costs associated with defending claims against your business.
Even if you work from home it may be that you need public liability insurance. If clients often visit you at your home office then this policy will cover you if they injure themselves while they're on your premises (it could be something as daft as tripping over the carpet!). And don't forget if you regularly work off-site your policy should apply to off-site as well as on-site jobs.
The premiums will depend on the type of business, your turnover and the number of employees. The problem is working out what level of protection you think you need. The key is not to underestimate – £1m may sound like a lot of cover, but if you find yourself facing a series of claims from a group of people the legal fees will be large.
It's also vital to keep your public liability policy up-to-date to reflect any changing circumstances in your business. As your business expands you're likely to find your risks grow too.
For more about insuring your business, read our guide on what insurance you need here.
Does your business need public liability insurance?
When you’re deciding what insurance your business needs, you need to think about the type of work that you do and the risks your business faces. The law doesn’t require you to have public liability (PL) insurance, but it’s a cover that’s crucial to many businesses. Potential customers may also want to check whether you’ve got a policy in place.
If your business comes into contact with third parties – whether that’s on your premises, in the homes of your customers, or on the street – you should probably consider taking out a public liability policy. It’s an insurance that’s particularly popular with shops, tradesmen and salons, because it can cover compensation claims made against you for injury, or for damage to someone’s property.
‘Third party’ includes your customers, your clients, your suppliers, or any other member of the public who comes into contact with your business. For example if you run a hairdressing salon and a customer trips over a cable that’s trailing across the floor, they could sue you for the injury they’ve suffered. The compensation amount could take into account things like medical bills and lost income.
Alternatively, imagine that you’re working on a construction project and a parked car is damaged while you’re moving your equipment. The compensation amount would probably be based on the repair or replacement cost of the vehicle. Compensation payments can be high, and remember that you’ll also have to pay legal fees. Your public liability insurance would cover these costs, up to the limit of your policy.
If you’ve decided that you need public liability insurance, you need to choose a cover limit, which is the maximum amount your insurer will pay for a claim. The amount you choose should be based on the risks that your business faces, so it may help to think about the size of your projects and the extent of your contact with the public. You should also check your client contracts, as some will specify a particular level of cover. In particular, government contracts usually ask for at least £5 million of public liability cover.
To summarise, here are some of the things to consider when you’re deciding whether your business needs public liability insurance:
- Does your business come into contact with customers or other members of the public?
- Is there a chance that your business could cause injury to someone or damage to their property?
- Do your client contracts ask for you to have public liability cover?
- Are you a member of any trade bodies or professional associations that require public liability insurance?
- Could a public liability policy help reassure your customers that you’re covered if anything goes wrong?