Liability insurance protects your business when someone else claims you caused them injury, illness or financial loss. For most small firms it is the cover that matters most, because a single serious claim can exceed a year’s profit. Some liability cover is a legal requirement, and some is a practical one demanded by clients and contracts.
This guide explains the main types of business liability cover, which are compulsory, and how to set the right limit.
The main types of liability cover
Business liability splits into distinct covers, each responding to a different kind of claim.
- Public liability. Covers injury to a member of the public or damage to their property caused by your business, for example a customer hurt on your premises or a client’s floor damaged during a job.
- Employers’ liability. Covers claims from your own staff for work-related injury or illness. It is compulsory if you employ anyone.
- Product liability. Covers injury or damage caused by a product you supply, make or sell after it leaves your hands.
- Professional indemnity. Covers financial loss a client suffers because of your advice, design or professional service. It is separate from public liability.
Public and employers’ liability are often sold together and are compared in public liability vs employers’ liability. For advice-based businesses, read professional indemnity insurance.
What the law requires
Employers’ liability insurance is a legal requirement for almost every business that employs staff, including part-time and casual workers. The law sets a minimum cover of £5m, though most policies provide £10m as standard. You must display or make available the certificate, and you can be fined for each day you trade without valid cover.
Public liability is not required by law for most firms, but clients, landlords and public bodies often make it a condition of a contract or a lease. Product liability is not compulsory either, yet retailers and distributors routinely require it before they will stock your goods.
How to set the right limit
The limit is the most your policy pays for a single claim or in a policy year. Set it against the worst realistic outcome, not the average one. A serious injury claim, including care costs and lost earnings, can run to seven figures.
- Public liability limits commonly range from £1m to £10m. Higher limits are standard where you work on client sites or in public spaces.
- Employers’ liability is £10m as standard, comfortably above the legal minimum.
- Match the limit to any contract requirement. A single low-limit policy can leave you unable to take on the work.
Describe your trade and activities accurately when you buy. A claim can be reduced or refused if the work you were doing falls outside how you described your business. Tell the insurer if you change what you do, take on higher-risk work, or start supplying a new product.
Liability cover is sold direct by insurers and through brokers, who are useful where your trade is non-standard. Under the Consumer Duty, firms must provide products that give fair value, which the FCA monitors. If a claim is refused and you believe the decision is unfair, use the insurer’s complaints process, then take an eligible complaint to the Financial Ombudsman Service, provided your business meets the size rules. Our guide to complaining about an insurer or broker sets out the steps.
Sources
- Employers’ Liability (Compulsory Insurance) Act 1969, minimum cover and legal duty to insure.
- Health and Safety Executive, employers’ liability insurance requirements and display of the certificate.
- Financial Conduct Authority, Consumer Duty and small-business eligibility for the Financial Ombudsman Service.