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What is Liability Insurance?
Liability insurance is a type of coverage that protects the insured party against claims for injuries or property damage caused to others. It covers legal expenses and compensation if the insured party is found legally liable. However, liability insurance generally does not cover intentional damage or obligations arising from contractual liabilities.
Why is Liability Insurance Essential?
Liability insurance is a vital safeguard for businesses in India, especially for entrepreneurs. With a population of over 1.25 billion and a rising interest in entrepreneurship, owning a business has become highly appealing. However, mistakes can happen—whether it’s an accident that causes injury, property damage, reputational harm, or a breach of privacy involving a customer, client, competitor, or the public. Liability insurance protects your business from financial and legal consequences, ensuring continuity and peace of mind.
Types of Liability Insurance
Public Liability Insurance
Many MSMEs hesitate to obtain public liability insurance due to high premiums. However, in the event of a claim, the legal expenses often exceed the cost of the insurance itself. Therefore, securing this coverage is typically a more prudent decision.
Product Liability
Although not mandatory in many countries, product liability insurance is essential for businesses that manufacture or sell widely used products such as chemicals, tobacco, medical supplies, food, recreational goods, and more. It protects companies from claims related to harm caused by their products.
Employer Liability
This insurance covers the employer’s responsibility for injuries sustained by employees during their employment. While some businesses may overlook its importance, a single claim could result in severe financial distress or even bankruptcy without this coverage.
Third-Party Liability
Third-party liability insurance provides coverage for damages caused by the insured to a third party. In this arrangement, the insured is the first party, the insurance company is the second party, and the claimant (injured person or entity) is the third party. This type of insurance ensures financial protection from such claims.
Indemnity Insurance
Indemnity insurance, also known as errors and omissions insurance, provides protection for businesses against negligence claims. It covers financial losses arising from mistakes, errors, or failure to fulfill contractual obligations, ensuring the business is safeguarded from potential liabilities.
How to Choose the Right Plan
| Scope of Coverage | Understanding the type of insurance policy you’re purchasing is crucial. Ensure you know which liabilities the policy protects you from. Conducting a thorough audit of your services with the help of a risk management or insurance audit company can provide better insight into your liabilities. |
| Understanding Your Clients | Purchasing liability insurance demonstrates to your clients that you are responsible and trustworthy. It shows that you are aware of the risks involved in your daily operations, making it essential to choose a policy that aligns with your business needs. |
| Claim Settlement Services | Liability insurance claims can be financially burdensome for insurers, making their claim settlement capability a critical factor. Many policies include arbitration clauses as per the Protection of Policyholders’ Interest Regulations to limit insurer liabilities. Ensure you select an insurer with a strong claim settlement record for reliable support. |
| Key Policy Exclusions | Every liability insurance policy includes certain exclusions. While some exclusions can be addressed with underwriting approvals, others are non-negotiable. Carefully review the policy to understand what is excluded and ensure it meets your specific needs. |