Managing Liability Insurance When You’re Self Employed

Being self-employed comes with a lot of freedom as well as responsibility. It means having more control over the hours you work, and holding yourself accountable for working those hours. It provides you with the ability to take on clients and expand your business on your terms. However, being self-employed also means assuming the risks and reputation of the business itself. As a contractor or small business owner, any negligence or accident caused by your actions can lead to a lawsuit that can cripple your business, your livelihood, and your brand. Fortunately, public liability insurance can shield you from the fees, expenses, and compensatory payments that result from such litigation.

How Public Liability Insurance Works

A basic public liability insurance plan covers self-employed individuals or contractors from any injury or property damage incurred by a third party. The personal injury portion aims to protect your business should any harm come to client due to your actions. This also includes any claims made by the NHS for hospital treatment. The property damage portion covers any damage to equipment or personal property, as well as the resulting cost to claimant should that property be vital to their daily operation.

For example, if an IT engineer were to spill coffee on a server and cause irreparable damage, the business would not only need to replace the server, but also be forced to suspend a significant portion of their operations while their network was down. The aggregate cost could escalate into the millions of pounds, which is why most small businesses and contractors must rely on insurance when such an incident occurs. In fact, in the UK many tradesman are required to have public liability insurance of £1 million, £2 million, or £5 million in order to legally conduct business. In short, public liability protects you against the following:

  • Lawsuits due to personal injury or property damage
  • Legal fees and expenses associated with a claim
  • NHS claims regarding hospital treatment and ambulance charges

Pros and Cons

Depending on your profession, the risk of a lawsuit may vary. For electricians, construction workers, and plumbers, public liability insurance may seem like an obvious part of operating a business. The opportunity for damage while working directly with a client’s property presents too great a risk to go without it. Similarly, hairdressers, massage therapists, and individuals who actively engage their customers and expose them to various products should also protect themselves with some form of insurance. However, for other professions, the risk may not appear substantial enough to justify the monthly premiums.

Nevertheless, a single incident is all it takes to induce a lawsuit that cripples your business. Simply meeting with a client and having them slip on a wet floor, or spilling a drink on their lap could provide grounds for a lawsuit. In addition, low risk generally translates to lower premiums, as most actuaries base their premiums on the likelihood of a claim being filed. Public liability insurance can also be packaged with other insurance options to provide more savings.

Moreover, having a reliable public liability insurance typically is an important part of creating trust between you and the client. Many clients will even refuse to do business with independent contractors that do not have an adequate public liability policy. The relatively low cost coupled with the peace of mind of having protection make having a strong public liability cover an important part of running a business.

Getting Started With Liability Insurance

Starting a new business can be both exciting and extremely harrowing. As the success of your business often hinges on those first few months, you may be looking for ways to maximise your profit margin and limit expenses. However, it is important to keep in mind that one area you should not neglect is obtaining the proper insurance.

Liability insurance is designed to protect your business from a lawsuit resulting from injury to a third party or damage to their property. Given the rising cost of medical bills and legal fees, it is not impossible for a single incident to not only bankrupt your business, but threaten your financial security for years to come. As such, the last thing you want is for your business to survive the early growing pains that plague many start-ups, only to be ruined by an accident that is out of your control.

What is Liability Insurance?

Liability insurance comes in a variety of forms. Depending on the type of business you run, you may opt for one or more of the following policies:

  • Public Liability Insurance – This is designed to cover you in the event of an injury to a third party or member of the public. It covers the medical costs suffered by the claimant, including hospital bills, ambulance rides, and NHS claims. Any legal fees associated with fighting the claim are also covered by the insurance company, up to the agreed upon limit. Most public liability policies cover anywhere between £5 to £15 million.
  • Employers’ Liability Insurance – This provides the same coverage as Public liability, but covers claims made by your employees as opposed to those made by customers or the general public. The two packages are often bundled together for businesses that need coverage for both.
  • Professional Indemnity Insurance – This type of insurance is designed for professionals
    who are in the business of giving advice. Financial advisers, medical professionals, and other technicians can be sued if their counsel is deemed negligent. For example, if a financial adviser suggests a person nearing retirement should invest in high risk stocks, this could be interpreted as negligent advice should those stocks fail.

What Type of Cover Do I Need?

The type of cover you require depends on what kind of business you run. A self-employed individual will have no need for employers’ liability, whereas someone who works at home may not require public liability insurance. However, if your job requires meeting clients or doing contract work out in public, you run the risk of being sued for any grievances you may cause.

For example, if you are a computer technician and spill hot coffee on a client’s servers, that could not only result in being liable for the cost of replacing them, but the loss of business and revenue that occurs while the equipment is being replaced. For this reason, most insurance plans offer cover in the millions of pounds. While the risk may seem minimal, having cover gives you the peace of mind to know that a single accident will not jeopardise your livelihood.

It’s also important to note that many liability plans offer flexible coverage. As not every business is the same, your risks may not be tantamount to the risks of your peers. Discussing your options with a licensed adviser is important before you choose an insurance policy. There may be other methods to reduce your risk, such as installing safety measures, having special safety training, or simply raising the amount of your excess. Many insurers offer a no claims bonus as well to businesses that have a strong safety record. Contact the various insurers and ask them about ways to reduce your premium.