Liability insurance came about when individuals or companies discovered they were vulnerable to the same or similar peril, and they created a self help fund out of which to pay compensation to any member should they incur a loss.
Now this fund is replaced by taking out a liability insurance policy with a licensed financial provider. Liability insurance is usually taken out against potential third party claims and is generally not paid to the insured. Payment is made to someone who has had an accident, suffered a loss, or otherwise been wrongly disadvantaged as the result of interacting with the policy holder in one way or another, but who is not party to the insurance contract.
Types of liability insurance
Liability insurance covers three main domains, namely public liability, product liability and employer’s liability. The policies are taken out in order to protect the holder against claims made through loss caused by carrying out their everyday activities.
For example a food supplier would take out product liability insurance in the event that some of the food he supplies is sub- standard through contamination etc. A construction company would take out employer’s liability insurance in order to look after the interests of their employees should an accident occur whilst at work.
Who is liability insurance for?
Sports stadiums, shopping centres, schools and hospitality centres all use public liability insurance, and the risk increases when alcohol consumption is a factor. Any business must consider its potential risks when deciding to take out liability insurance, as not having, or having insufficient insurance, could prove disastrous.
Many small businesses opt out of public liability insurance due to the high premiums; however, if a case was drawn against them it could ruin the company financially, forcing it to close its doors. This shows how important liability insurance is and it is always a good idea to speak to your broker about requirements and possible policies as it could save your business if diaster strikes.
At least consider taking out liability insurance to cover claims above the amount you could handle, if the worse came to the worst. As in other insurance, the higher the excess (the part you must pay) the lower the premium.
