Liability insurance is a family of three covers that answer for three unrelated things. Small businesses buy the wrong one regularly, because the word liability appears in all three names and because the person asking for it often does not say which they mean.
Public liability: harm to people outside the business
Public liability answers when the business injures a member of the public or damages property belonging to somebody else. It is the cover a shop needs for a customer who slips, a trade needs for a client's damaged floor, and a market stall needs for a passer by. It is not compulsory in law for most UK businesses, and it is required so routinely by clients, venues, markets and local authorities that the distinction rarely helps anybody. The limit is normally set by whoever is asking rather than by the business.
Employers' liability: harm to people inside it
Employers' liability answers when somebody who works for the business is injured or made ill by that work. It is compulsory once a business employs anybody, and the certificate has to be available to staff. Insurers rate it on wage roll and on what the people actually do, so the same payroll costs very different amounts for an office and for a roofing firm. Volunteers, casual staff and labour only subcontractors are the categories most often missed in a declaration.
Professional indemnity: harm done by advice
Professional indemnity answers when the service, advice, design or specification the business sold was wrong and the client lost money as a result. No physical injury or damage is involved, which is exactly why the other two policies do not respond. Consultants, designers, accountants, IT firms, marketing agencies and any trade that specifies as well as installs are inside it, and the trigger is usually the claim being made rather than the work being done, which makes continuous cover and run off important.
Picking limits without guessing
Three sources set a limit for you: a statute, a contract or a professional body. Where none of them speaks, the question is what the worst realistic claim looks like, including the legal costs of defending it, which are frequently the larger half for a small business. Buying a higher limit is usually cheaper than the multiple suggests, because the extra layer is only reached by rare claims, so the gap between one million and two is worth pricing rather than assuming.
Questions people ask about liability insurance for small business
Which liability insurance is compulsory for a small business?
Employers' liability, as soon as anybody is employed. Public liability and professional indemnity are required by contracts, clients and professional bodies rather than by statute.
Can one policy cover all three?
A combined or package policy can carry all three sections, but they remain separate covers with separate limits and separate wordings inside it.
What limit does a small business usually need?
Whatever the contract, lease or professional body names. Where nothing names one, size it to the worst realistic claim plus defence costs rather than to turnover.