How much public liability insurance do I need?
I run a small business. Do I really need cover worth millions?
While the answer is nearly always ‘yes’, it’s not a black-and-white issue.
Public liability insurance protects you against a claim made because someone has suffered injury, death or damage to property, as a result of something you or your business has done, or failed to do.
However, the size of a claim can inflate quickly.
Imagine you are working on a building site. You are up on the scaffolding and accidently drop a large tool over the edge. It hits a passing a car, and unfortunately causes a serious accident.
The driver suffers life-changing injuries, and he makes a claim. His claim may include loss of earnings (if he is not able to return to work), alterations to his home to accommodate his wheelchair, and medical treatment. You may also have legal fees to pay due to the claim. Suddenly a relatively small incident has resulted in substantial costs.
What factors are considered when working out the cover I require?
How much cover you need will depend on your circumstances. The following examples represent some (but not all) of the possible factors.
The size and nature of your business
Are you a one-man band or a limited company? Is your annual turnover a five-figure number or in the millions?
Contact with the public
If you work with or among the public, for example in a retail outlet, there is an elevated risk of a third party making a claim against you if an accident occurs.
Using potentially dangerous materials or equipment
Regular work with kit like a chainsaw or pneumatic drill is likely to pose a greater risk.
The type of work you undertake
An online store may be perceived as lower risk than a local builder.
Your public liability claims record
A string of previous claims would inform an insurer about your level of risk.
The specific insurance cover or product you want
For example, you may also want to include cover for product liability, in addition to public liability.
What is the typical level of cover?
Insurance providers normally offer different levels of cover. The most common for small businesses and tradespeople are: £1 million, £2 million, £5 million, or £10 million. Those figures represent the maximum amount your insurer would pay out in the event of a successful claim under that policy.
You will be offered cheaper premiums for lower levels of cover, but you should not choose based on price alone.
Which is the right amount of cover for me?
If you are having difficulty deciding, the first thing you should do is talk to a professional trade body or association that you belong to.
Some trade associations require members to have a minimum amount of cover. For example, the Association of Plumbing and Heating Contractors insists all members have a minimum of £2 million cover.
Alternatively, the organisation may be able to help you decide what is appropriate for your business.
You could also ask colleagues in the same profession as you. You are urged to be careful when doing this: their circumstances may not be the same as yours.
Some contracts may also specify the amount of cover you are required to have. For example, government and local authorities will usually require their contractors and suppliers to have at least £5 million of public liability cover.