Liability Insurance: Everything You Need to Know

What is Liability Insurance?

It is a type of business that protects your business from third-party claims due to any injury or loss to him/her in your industry.  It also covers the legal costs in case the third-party sue your company for any of the above-mentioned reasons. But, it does not cover any claim due to contractual liabilities or intentional damage.

Why should a business owner buy Liability Insurance?

No matter how cautiously, you run your business, it will always be at risk of loss, damages, etc. When any third-party claims for any damage to property or bodily damage, this policy will cover that expenses. In case of any legal case, the cost is very high. Depending open the number of persons injured and the severity of the injury, the cost may bankrupt your business. Along with the legal cost, you are also liable to compensate the injured for their loss. So, as a whole, you may fall into a big debt.

But, if you have liability insurance, it will cover all the above-mentioned issues and you can run your business smoothly in such problematic situations. So, every business owner, small or large should buy this policy. It is good for his/her mental peace.

Types of Liability Insurance

Depending upon the area of coverage, liability insurance is divided into the following types.

  1. Public Liability Insurance: – This is a type of liability insurance that protects you and your business against the legal cost when your company is liable for the injury, death, loss, or damage to the property of the general public. This insurance is necessary for those companies, which involve interaction with people regularly like retail stores, hotels, hospitals, etc.
  1. Product Liability insurance: – This policy protects your business from third-party claims and legal costs arising due to any harm or injury because of your product or service use. Generally, production companies like companies producing chemicals, tobacco, food items, machine parts, etc. take this policy. 
  1. Professional Liability Insurance: – This is also called professional indemnity insurance or Errors & Omission Insurance. This policy protects professionals like Lawyers, charted accountants, and architects from claims of their clients when the clients face losses or problems due to their advice or service.
  1. Director & Officers Liability Insurance: – This policy protects the present, past, and future directors and officers of your company from third-party claims when any third party bears loss or damage of property or any bodily injury due to their actual or alleged wrongdoings. This policy also covers the legal cost in case of lawsuits.
  1. Employer Liability Insurance: – This insurance covers any bodily injuries or diseases of employees while working inside the business premises. Like other liability insurance, it also covers the legal costs in case of any legal case from the employees. It is also known as Business Liability Insurance.
  1. Third-party Liability Insurance: – This policy covers the damage or injury to third-party by the insured company. Here the insured company is the first party, the insurance provider is the second party and the person or company who is making the claim is the third party.

Who should buy Liability Insurance policy?

Any professionals or companies who have a chance to face injuries, damage or property loss, should buy liability insurance. Look at these categories to get better clarity.

Professional service providers like hospitals, clinics, banks, etc. should buy liability insurance policy, because any mistake made by them may harm their customers or clients.

Manufacturing companies which manufacture goods like food, toys, electronic parts, automobile parts should also buy this policy. Because their goods or services may hamper the customers. Take an example of ban of Maggi. When it was found that, consuming it is not safe, the product was banned. In such cases, the legal costs are covered by liability insurance. In case of no liability insurance,  the company have to bear all the cost by itself. This may lead to closing of that company. 

Persons or organizations representing their clients like lawyers, advertising agencies, charted accountants (CA) should also buy this policy.

When does a business need Liability Insurance?

You will need to buy liability insurance under the following conditions.

  1. To sign a lease: – The property manager may ask for a liability insurance certificate when you sign a business lease. Because accidents in businesses are very expensive.
  1. To fulfill the terms of contract: – When you work with some clients on a project, they may ask for a liability insurance certificate, especially when you are an owner of a small business and you are working with a large company.
  1. To get a license: – Professionals like charted accountants (CA), dentists, or real estate agents may require liability insurance while applying for license.

Features of Liability Insurance

Liability insurance comes with some amazing features for business owners. Look at the features and benefits provided by this policy.

  • It provides financial protection to both individuals and businesses.
  • It protects businesses against third-party claims.
  • It covers the legal costs in case of lawsuits by third-party.
  • Bodily injury of third-party and also personal injury is covered by this policy.
  • It also protects against property damage.
  • Contractual liability, claim against intentional damage, and criminal prosecution are not covered under this policy.
  • Claims or allegations of employees are also covered.
  • Some common types of liability insurance are public liability insurance, product liability insurance, professional liability insurance, and workers’ compensation policy.

What is covered under Liability Insurance?

This policy covers the following expenses.

  • The legal costs when any third-party files a case against the insured company/professionals
  • Claims due to any injuries, damage, or accidents of the employees inside your business premises
  • Settlement and Investigation expenses
  • Fees of lawyers and investigating officers, when you hire them due to filing of a case by a third party
  • Medical expenses, when a third party gets injured due to an accident inside your business premises
  • medical expenses, when a third party gets injured or diseased due to the use of your products
  • Injury or damage to the third party, when he/she visits your business premises

What is not covered under Liability Insurance?

In the following conditions, the expenses are not covered under liability insurance.

  • Intentional damage 
  • Loss or damage due to natural hazards like floods, earthquakes, cyclones, etc.
  • Loss due to change in market value or market image
  • Violation of copyright, patent, trademarks, etc.
  • fines and penalties
  • Liabilities due to pollution
  • Loss or damages due to war-like situations

The policy exclusions may differ from policy to policy or from company to company. So read the policy carefully before purchasing the policy.

How does Liability Insurance work?

The word liability insurance says that this policy covers the company’s liability. It covers the loss, damage, or any bodily damage to third-party because of working in the company, visiting the business premises, using the product manufactured by the company, or any other reasons related to your business. The policy covers that cost when a third party sues your company for any of these reasons in court. So, it protects your business and the third party.

Look at how this policy works below.

  • First, you have to list what are your requirements. 
  • The requirements depend upon the type, size, & location of the business, and the number & types of risks involved in the business.
  • So, after evaluating your business properly, list all your requirements.
  • Compare different policies from different companies.
  • Then choose the insurance policy which covers all your requirements at the best price.
  • Read the terms and conditions carefully, while buying it and keep all the required documents ready.
  • Renew your policy in time.
  • Whenever you face any claim or legal case from a third party, for any of the reasons mentioned in your policy, you can file a claim. After verifying all your documents and getting a review from the surveyor appointed by the company, the insurer will approve your claim.

Workmen Compensation Policy

Things to consider before buying Liability Insurance

As a huge amount of money and financial safety of your company & your employees are involved in this company, you should look carefully into certain important things before buying this policy. Here are the important things you should consider before buying liability insurance.

  1. Coverage: – When you are buying liability insurance, first of all, check what benefits are covered under the policy. Buy a policy with the benefits covered that you require. For example, if you have a business dealing with financial assets like a bank, then you do not need any product liability coverage. Hence analyze all your requirements and buy the policy accordingly.
  1. Total amount covered: – The risk involved in different businesses vary from one another. Small businesses like retail shops have lesser risk than large businesses like a large manufacturing company or a chain of hotels. So, first, estimate the total amount of risk involved in your business carefully, then decide the net coverage amount for your policy. 
  1. Do not always opt for the cheapest policy: – Buying the cheapest policy is not always the best option. Because it comes with certain limitations. So, compare as many policies as you can and find the policy, which satisfies all your requirements best at the best price.
  1. Reduce your business risk: – Although after taking all precautionary majors, all the businesses are still at risk, you have to take appropriate steps to reduce the risk. This will decrease the severity of loss and also reduce the premium amount and you can use that remaining part in other valuable investments.   
  1. Factors that will impact the premium amount: – Along with the size of the company, many other things affect the premium amount. Depending upon the company location, assets to be covered, type of business, etc. the premium amount differs. So, analyze all these factors before purchasing the policy.
  1. Deductibles: – Deductibles are the amount of money you will pay at the time of insurance claim. The remaining part will be paid for by the insurance company. So, this reduces the premium amount. But, do not opt for higher deductibles amount just to reduce the premium amount. Opt for an affordable deductible amount. Because in a business, there are many expenses to be cleared on a daily basis.
  1. Give more emphasis to your business needs over premium amount: – Do not consider the premium amount as the sole base in choosing the policy. Give more emphasis to your business requirements and look at whether the policy covers all the requirements or not.
  1. Buy from reputed companies: – Buy liability insurance from a reputed company, so that in the future, you will not have to face any problems like frauds or other issues.

Liability insurance claim process

Follow the given steps while claiming your liability insurance.

  1. Intimate the insurance company immediately after the mishap through mail or toll-free number or through other means as mentioned in your policy copy.
  1. Fill out a claim form with all the details and sign it.
  1. File an FIR in the nearest police station in case of any criminal activity or death.
  1. The company will send a surveyor to examine. Assist him/her whenever required. 
  1. Keep all the documents of assets lost or damaged and estimate the actual loss amount.
  1. Keep the records of all kinds of business communications like phone calls, E-Mails, or face-to-face conversations with the third party. This may act as evidence at the time of claim. Arrange other evidence also about the incident if present.
  1. Submit your claim form along with all the documents and evidence to the insurer.
  1. The company will evaluate your claim form, documents, evidence and review given by the surveyor. Then after verification, it will approve your claim and the amount will be sent within certain working days according to the terms and conditions of the policy.

Documents required to claim liability insurance

  • Duly filled claim form with signature
  • FIR copy, if applicable
  • Surveyor report
  • Photographs and other evidence showing the damage or loss
  • Identity proof (Aadhar card, PAN card, etc.)
  • Copies of licenses, permits, and certifications
  • Medical reports and bills in case of bodily injury
  • Repair bills and photographs of assets (before & after repair) in case of property damage
  • Postmortem report, death certificate, burial certificate, and identity proof of diseased in case of death

You may require some other documents according to the terms and conditions of the policy.

How to renew your Liability Insurance?

Renewing your liability insurance is very important. Because you can avail of its benefits only within the tenure. 

Here are the steps you need to follow to renew your existing liability insurance.

  • First, log in to your account using your policy number. 
  • Then review your existing plan. 
  • Add or remove add-ons according to your current requirements. This will decide your current premium amount.
  • Then pay the premium amount using net banking, debit card, credit card, or other payment gateways provided by your insurer.
  • Your insurance will be renewed and the company will mail you the updated policy copy. A hard copy of the policy will also be sent to your postal address.




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