What to Look for When Buying Liability Insurance

By Susan Landis-Steward , last updated June 15, 2011

If you own a business, and it's possible that you could damage someone's property or hurt them in some way, liability insurance will protect you and your business if someone makes a claim against you. It does not cover your own losses or injury, but will protect your assets should something happen to another person.

There are three types of liability insurance. The first is public liability and it provides coverage for third-parties if your business is involved in certain risky activities. For example, restaurants and bars may carry public liability to cover accidents, fires, fights, or other things that could harm customers. This insurance is important because if something happens and your business is found liable, uninsured losses could cause your business to shut down completely.

Product liability is important if your business manufactures a product that could hurt someone. Even if you take all precautions, someone injured by your product could claim that you were negligent in making or selling the product.

Employer liability protects you if an employee claims that your negligence or wrongdoing caused the employee to be injured. At a minimum, most states require tht you carry workers compensation policies to cover employees injured on the job. You can, of course, buy more insurance to cover other liability claims brought by employees.

If you have a liability claim made against you, your insurance company will be able to defend the case in court and attempt to prove that you were not liable. Your policy limits may not cover the costs of such suits. Also be aware that your insurance company may try to prove that, although you were liable for the incident, your behavior in some way lays outside the scope of the coverage. It's a good idea to discuss the type of liability coverage you may need for your particular business and understand exactly what it will and will not cover.

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