Businesses face many risks in the course of operations from time to time. Some of these risks pose a serious threat to profitability and possibly the existence of the business in worst case scenarios. For this reason, most businesses choose insurance to cover their operations and costs in the event of loss.
Liability insurance is one of the major business insurance policies. This policy offers to insure business owners, business professionals, and self-employed individuals against financial loss arising from the compensation of claims due to malpractices, injuries or negligence. This type of insurance is important since it also acts as an asset protection plan from adverse expenses.
Liability insurance covers legal expenses and claim amounts imposed on the business owner if found legally responsible. It is therefore essential for practicing individuals who are likely to be held accountable for damage or injuries of the next party. There are various types of liability insurance policies as listed below.
Types of Liability Insurance
1. Employers liability and workers compensation cover
This is a policy that covers the cost of compensation in case an employee acquires an injury or damage due to work-related reasons. It also covers the employer or business owner’s costs of legal fees in the event an employee or a former employee sues them for the same reasons.
This type of insurance is compulsory for businesses with employees and is inspected by the licensing authorities.
2. Product liability cover
Have you at some point fallen victim to using a faulty product? You have a right to compensation for that too.
Product liability is a policy that covers for damage imposed on an individual or business from the use of a faulty product or service. Manufacturers, distributors, and sellers are mostly known to purchase this type of policy.
3. Indemnity insurance cover
Take a case where a practicing accountant advises a client on a suitable investment plan. The client ends up losing all his money and decides to sue the accountant. This is where the indemnity insurance policy steps in. This policy covers the business owners and professionals in the event that they need to compensate clients for damages arising from the belief or argument that loss or damage is a result of the incompetent advice in their capacity.
4. Directors’ and officer’s liability cover
This type of liability cover extends protection to a business’ directors, governors, and officials. It offers coverage to the cost of compensation or legal claims against the directors made by employees, competitors, regulators, clients, shareholders, or even suppliers.
For example, in a case where an employee sues a director for bias after being laid off when the main reason for being laid off is to cut expenses, this policy will cover for legal and any arising compensation costs.
5. Umbrella liability policy
This is also known as the excess liability insurance. This type of policy provides extra coverage for catastrophic events.
The umbrella policy contains specified underlying policies. These policies have their limits. They include general liability, employers liability, and auto liability among others. Compensation by the umbrella liability only sets in when the limits of the underlying policies are exceeded.
Umbrella policies, however, exclude some policies; Such as professional liability, product recall coverage, workers compensation, asbestos, war, and terrorism-related claims among others.
6. Commercial general liability policy
This policy covers the business against legal claims and compensation arising from damage on property, bodily injury, or even damage to intellectual property that may arise from the employee’s negligence at work.
For example, a company will purchase the policy to insure a member of the public who may be harmed as a result of the business’ activities.
On That Note
You can never fully predict when misfortune will strike. Liability insurance policies prepare the business for whatever comes, when it comes, and however it comes. Would you rather insure your business or watch the years of hard work be brought down by unexpected expenses?
Featured Image: depositphotos/ RawpixelPosted on June 20, 2018