What is the need of Liability Insurance?
There are many cases when businessmen get into trouble due to improper practices, negligence, or other malpractices. One can even be prosecuted during such an incidence, and this would have very negative consequences both on one’s personal finances and on the financial performance of the business. Sometimes if a businessman is found liable and he/she does not have insurance, the sum of money he/she needs to pay is so enormous, that makes his/her life a nightmare. This is why Liability Insurance was designed.
What does the term Liability Insurance refer to?
It is a business insurance contract that defends the insurer from being prosecuted due to any form of negligence. The protection covers both the occurring legal expenses and the possible legal payouts. However, people should know that Liability Insurance does not provide coverage for intentional damages or for debts related to business-contracts.
But in order to be able to choose the right policy and to understand the coverage that it provides, people need to study the terms and conditions carefully.
These terms should state that the policy covers the insured for damages that occur during the policy-period. These are accidents/incidences that affect a third-party, and who therefore lays claim to the insured. Liability insurance statements must describe clearly those situations and cases which are insured. Also, people should be very careful of those conditions that are excluded, and thus, are not covered. For instance, injuries to workers are not covered as for these situations there is the special workers’-compensation insurance.
In addition to, liability insurance does not pay for damages caused by a company-automobile. For such coverage people need a separate commercial-vehicle policy. Damages related to business-property are not covered either, for this purpose one should look for a property insurance. The main reason for which the above-mentioned elements are not covered is that Liability Insurance covers only those claims that are related to a third-party, while people’s own business is considered to be a “first-party”. Usually, liability insurance does not cover pollution. So a business harming the environment may only be covered with a pollution-endorsement.
Who is recommended to purchase Liability Insurance?
This policy was primary designed for those who have high-responsibility jobs. Good examples for such jobs would be business-executives, business-owners, or individuals practicing medicine. There is a higher than average chance for such people to get into serious trouble by being held legally responsible for their actions. Liability Insurance may protect such individuals if they are sued due to any mistake or negligence committed by them. Therefore, this insurance should be part of the risk-management plan one implements for himself/herself, or for one’s business.
What are the tips and traps for this insurance-type?
A quite useful thing for small businesses to do is to include liability insurance into the company’s larger insurance-policy. Besides the liability coverage, this may involve property and/or casualty insurances. This larger package is known as the “business owners’ policy” (or in short, BOP). However, one may opt for a separate coverage as well, which is called “commercial general liability insurance” (or CGL). Both of the above-mentioned types provide the same level of coverage.
Next, people need to understand the limits regarding Liability Insurance. Talking about a standard policy, we may talk about two kinds of limits. With the “Single Occurrence Limit”, the insurance-company pays only on a single occurrence, while the “Aggregate Limit” refers to the maximum amount of money the insurer agrees to pay during the policy-period. Generally speaking, the latter is twice bigger than the former. If these insurance-conditions seem to be too complicated, people should ask an insurance-professional for adequate help.
Finally, people should be informed on insurers’ duties if a claim has been made. Insurers have the obligation to defend the company of the insured (by paying for legal and other related costs), as well as an obligation to compensate, namely, to pay the claimed money. From this it is obvious that Liability Insurance is crucial in people’s business-insurance schemes, as it can be very helpful when needed. And also, it can be very “wanted” if a claim occurs and one needs to pay for everything that could have been covered by this special insurance.