Who needs a liability insurance?

Insurance is a critical tool for risk management. It makes it slightly easier for us to embrace and deal with the uncertainties of life. It prepares you to face any kind of financial emergency or sudden liability with confidence. While life, health and motor insurance are the most commonly sold products, there are other insurance products that focus and offer risk cover for specific issues.

Liability insurance is one such product that offers financial protection against certain potential risks. Its scope of work is defined by the Public Liability Act of 1991. Let’s understand the key aspects of liability insurance and who should buy it.

What is liability insurance?

Liability insurance, as the name suggests, will offer cover to individuals or businesses against potential legal liabilities. These liabilities could arise due to sheer negligence, malpractice, damage or an injury caused to the third party. While several kinds of liability insurance products are available in the market, each one caters to a specific issue or risk. Most commonly availed by business owners and entrepreneurs as financial protection against lawsuits and/or individual claims, the basic idea behind this policy is to fund for lawsuits and compensation, if any.

Liability coverage forms an essential component of risk management that protects the business/individual from financial damage and legal mess. If, for example, an employee of an insured organisation is held responsible for third-party loss, a liability cover can become a way out for the company. In fact, those working as journalists, cab drivers, doctors, lawyers or anyone who engages with the general public must get themselves a liability cover. In case of being sued and instructed to pay legal compensation, your insurance policy will take care of such unwanted expenditures.

Types of liability insurance

There are different types of policies catering to your liabilities as per the line of work of the customer. Some of the most common liability cover policies include the following:

Public liability cover

It’s a type of policy designed for companies that have direct and frequent interaction with the general public. The concept behind buying this insurance policy is to secure yourself from unnecessary financial risks and legal liabilities. News channels, retail shops, clubs, theatres, etc. are advised to take this variant of liability policy.

Moreover, comprehensive public liability insurance also covers legal exposures that may arise due to a certain act of God, accidental pollution disaster, etc. Some popular exclusions that one must be aware of include the likes of libel and slander,  basic fines and penalties, deliberate non-compliance of any statutory provisions, etc.

Employer’s liability insurance

It provides covers with the statutory liability of an employer arising out of death or bodily injury as a result of the nature of service. However, it won’t include certain predetermined occupational illnesses mentioned in the Employees Compensation Act. Death or bodily injuries that result in disablement caused due to a workplace accident or occupational illness is covered under the policy. Any damage caused to due to a war or nuclear perils remains outside the purview of this insurance cover.

In fact, employer’s liability insurance is a legal requirement in India under the Workmen Compensation Act, 1923 or Employee Compensation Act.

Professional indemnity insurance

It is a popular liability policy that is aggressively advised as a must-have for professionals such as doctors, engineers, lawyers, chartered accountants, and media professionals. It protects them against legal claims for professional neglect, bias, error or omissions.

Cyber risk insurance

Cyber risk insurance reduces the risk exposure of any organisation with respect to a cyber security breach. Social media fraud have become a rather common phenomenon today. Typically, cyber risk insurance will cover the expenses of online security breaches that include the investigation cost, privacy and data breach notification, business losses and legal expenses that may arise in due course of time.

Premium amount of liability insurance

The premium amount for a particular coverage sought by the policyholder will greatly vary depending on an individual’s needs and requirements. Of course, the insurer’s base rate for the policy is considered as the basis to calculate premium rates. But factors like the nature of employment and risk exposure, previous claim history and work environment are key parameters to be considered while assessing the total insurance cost.

The claim process for liability insurance mostly varies as per your insurance provider. Nevertheless, the procedure to file a liability claim requires extra documentation due to a number of legal formalities involved in such cases. You must read the terms and conditions of the insurance policy well beforehand. It will indicate the necessary documents required basis the nature of liability. Claim filing can be carried online but incident verification will depend from case to case.