Public liability insurance is really important for small businesses and start-ups, even though arranging insurance might be quite low on your list of things to do. It’s easy to think that whilst your business is still in its early stages you won’t need insurance cover because there would be nothing for anyone to claim against if they were to sue you.
But remember that unless you’re a limited company, any loss to the business is a loss to you personally. If your business has insufficient assets to pay out compensation for someone who has been injured or had their property damaged, a court could order that the money must come from your personal assets instead.
For example, your start-up company has a value of approximately £4,000 based on how much it would fetch if it were liquidated (all its assets and any goodwill sold). If you caused harm or damage to another person or their property and they sued seeking £40,000, you would probably have to pay the balance from your own assets. If you owned a house, it would either have to be sold to pay the debt or a charge (like a mortgage) would have to be registered against it so that when it was eventually sold, £36,000 plus interest would go to the injured person. Alternatively, you would have to re-mortgage to raise the money to pay to the injured person.
As well as protecting your personal assets, public liability insurance is important to convey the right message to your customers and potential clients. If you are a builder and don’t carry public liability insurance, what customer is going to allow you to make alterations to their homes? If you used the wrong materials or bodged the job in some other way, how would they get their money back? They couldn’t without going to court – and what customer would employ a builder with that risk involved when they could choose another builder with adequate insurance in place? Having public liability insurance in place lends your business the air of respectability and demonstrates to your potential customers that you are a reputable small business or start-up.
When calculating how much public liability insurance cover you might need, don’t forget to add in a considerable sum for legal fees (usually about 40% – 60% of the compensation value you think you might ever have to pay, bearing in mind the likely risks involved with your particular business). Public liability insurance would cover your legal fees but also pay out for the legal fees incurred by your customer if they win their case.
Public liability insurance cover starts at £1million but you can choose to insure your business against a higher amount. Shop around and compare quotes to get a good deal but remember to check the small print for any conditions that would limit your ability to claim.