Liability insurance - Its importance and types

09th November, 2021

Insurance gives an individual or a group financial protection that gives the insured party a claim resulting from damage and injuries to the property or people. Liability insurance covers all payouts that an insured party may be held accountable for if they are legally liable. Contractual liabilities and intentional damage are not covered under this policy. However, unlike the other kinds of policies, liability insurance will pay for the third party and not the policyholder.

Herein, we elaborate on why liability insurance is so important and what are its types.

Need and importance of liability insurance

Several clients will only get you on board when you have liability insurance. This form of insurance does a lot more than guard you. It helps you get more work and builds a certain degree of trust among potential clients. Further, you can even give your customers a certain level of professional assurance with a liability insurance policy in place. Naturally, your customers will appreciate you for this, which will give you an edge over competitors in your field. You must bear in mind that liability insurance is one of the best ways to protect yourself, your family, as well as your business from costs that crop out from unexpected situations. Where you are today is an outcome of years of labor and hard work. Your skills, time, effort, and energy have been invested in it. And a liability insurance policy acknowledges this investment and gives you a chance to thrive in your field.

Types of Liability insurance
Broadly, there are three kinds of liability insurances. We will detail them below one by one:

  • General liability insurance
    Such insurance is not designed solely for the companies. It is one of the vital components of car or home insurance policies. For the businesses, the liability insurance shelters against the expenses incurred toward the property damage or bodily injury suffered by the third party on the business premises or inflicted by your service or product. For instance, if a third party who visits your company premises gets hurt and decides to sue you because the incident occurred as an outcome of your negligence, it will be considered a fairground. In this case, the expenses involved in the investigation or defense costs would be covered by the liability insurance.
  • Professional liability insurance
    Professional, or errors and omissions, liability insurance covers all the claims if your company has made any flaws in the services offered. For instance, if a client claims that you provided them with inaccurate financial advice, which resulted in them losing money, the professional liability insurance will cover your legal defense costs. In addition, the insurance will guard you against the claims alleging

    • violation of fair dealing and good faith,
    • misrepresentation, and
    • negligence.

Professional liability insurance is the most suitable for you if your company offer services to customers. This form of liability insurance offers coverage against

  • Attorney fees
    Costs for hiring an attorney or a legal team can be anywhere between $100 and $200 per hour, and even more in certain cases. More so, the cases go on for months and even years, at times. Hence, the total expense might go anywhere between $3000 and $150000. However, if you have coverage under professional liability, the policy will reimburse the amount if the case against you goes to court.
  • Court fees
    These fees comprise the costs borne toward the reservation of the courtroom and the amount paid to the professional witnesses.
  • Administrative costs
    Such expenditures comprise all the expenses involved in gathering documents, such as written testimonies, customer waivers, business receipts, and medical records.
  • Judgments and settlements
    These fees include the money that your business pays to the plaintiff. This cost is challenging for the companies to pay for the judgments or the liability settlements, but professional liability insurance will cover these payments.
  • Insurance for officers and directors
    Business owners are subject to some responsibilities, especially when the business is interrogated for the actions associated with unfair competition, corruption, tax evasion, environment, prosecution, or bankruptcy. Officers, too, are accountable for their acts and must act diligently and fairly, assuring the business’s best interest. This form of liability insurance protects policyholders against the financial consequences of their acts as a manager.