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Liability insurance

Liability insurance covers business owners, independent professionals and self-employed people against the cost of compensation claims following fault of negligence brought against them by employees, clients, customers, shareholders, investors, or members of the public.

Liability insurance usually covers the cost of compensation to a third party for:

  • personal injury
  • loss of, or damage to, property

Legal obligations

If you are an employer you are legally obliged to have employers’ liability insurance. Other types of liability insurance are optional.

The main types of liability insurance are:

  • employers’ liability
    required by law if you have employees – covers the cost of compensating employees who are injured at or become ill through work
  • public liability
    covers the cost of claims made by members of the public for incidents that occur in connection with your business activities
  • product liability
    covers the cost of compensating anyone who is injured by a faulty product that your business designs, manufactures or supplies
  • professional indemnity
    covers the cost of compensating clients for loss or damage resulting from services or advice provided by a business or individual
  • directors’ and officers’ liability
    covers the cost of compensation claims made against your business’s directors and officers for alleged wrongful acts 

Buying liability insurance

You can buy liability insurance directly from an insurer or from a specialist broker through the British Insurance Brokers’ Association (BIBA).

Your insurer will calculate the cost of your cover using a 'book rate.' This rate is based on:

  • the type of liability insurance you are buying
  • the claims history of other companies of a similar size and nature
  • factors specific to your business including:
    • the number of people you employ (for employers’ liability insurance)
    • your annual turnover (for public liability and product liability insurance)

Legal expenses

Liability insurance will cover some of the legal fees arising from compensation claims, but not all of your legal expenses will be covered by your policy. You can buy legal expenses insurance on top of your liability insurance to cover you against the cost of pursuing legal action or defending your business against claims. 

For more information on business insurance see the ABI guide on insurance for small businesses (pdf 466KB).