Being an employer or small business owner, it is your legal responsibility towards your employees, customers and the public. You could be held legally liable and risk being sued if an employee or a member of the public suffers an injury as a result of your breach of duty or negligence. If their personal injury claim is successful, you might also receive a bill from the National Health Service for refund of hospital treatment costs (including ambulance costs if and when appropriate).
Basically, liability insurance is designed to pay any legal costs and compensation that occur if someone is found to be at fault. If you employ anyone it is very likely that you will required to buy employers' liability compulsory insurance (ELCI).
ELCI forces any employer running a business in the UK to provide insurance against their liability to their employees for bodily injury or illness suffered whilst in your employment in the United Kingdom. Liability insurance provides greater peace of mind to employers against costs which could otherwise result in cash flow difficulties, and to staff members that funds will be available to pay compensation even where companies have become insolvent.
How liability insurance works
The price of an insurance policy - known as the premium - is normally calculated using a "book rating". It is started by beginning with a base rate, which includes the insurance company's overheads and reflects their desire for your particular type of business - if they want your type of business, the cost will be less than if they don't.
The premium is then modified to reflect the insurance company's estimation of the level of risk related to a particular profession or business area.
The premium will be amended by things such as any previous claims, the insurer's perception of the risk involved and your approach to risk management.
The safer your workplace and the fewer claims you have made, the lower the policy should be.
Premiums are also calculated on the track record of other similar businesses by amalgamating both good and bad - small businesses with a good record may be damaged by this. Your own approach to risk management plus your safety record can lessen the effect of this.
With employers' liability, the risk to the insurance company is calculated whilst taking into account the number of employees and the size of the payroll. Additionally, there are further factors that affect how costs are calculated.
For product and public liability the insurance risk is calculated on the turnover of your company and other items such as whether you carry out your business away from your normal place of work.
What is covered by public liability insurance
Insurance for public liability insures against any damages and costs awarded to a member of the public because of an injury or damage to their property or belongings caused by you or your staff. It also insures against any expenses, costs and related legal fees together with costs of hospital treatment (including ambulance costs) that the National Health Service may claim from you.
Policy costs depend on the type of business you run, the turnover of the business and the number of employees you have.
Public liability insurance can be a complex product and possible customers should study carefully all of the policy documents to ensure that the insurance is right for their business.
Even if you work from home, if members of the public or customers meet you there, you may also want to think about taking out public liability insurance.
Some businesses, for example horse riding schools, are required to have public liability cover. You are also likely to discover that a number of your potential or existing customers need proof of current public liability cover prior to allowing you to work for them.
Many owners of small businesses or self employed tradesmen will discover that there are liability insurance products that are tailored to their business. These policies can be marketed under a variety of labels including self employed liability insurance, business insurance or small business insurance. These offerings will include a number of individual sections including public and employers liability, combined with a combination of office insurance, legal expenses and professional indemnity.
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