What Does Employers’ Liability Insurance Cover?
Employers’ liability insurance is a necessity for many businesses, as it’s a legal requirement if you hire people outside your family who are not based abroad. But what does it cover, and how much do you need? We explain what employers’ liability insurance covers and look at some example claims.
You would typically need to include employers' liability insurance in your business insurance package if you employ anyone in the UK. But what does an employers’ liability insurance policy cover? Here, we run through the basics and look at some possible scenarios where it could come in handy.
What does employers’ liability insurance cover?
Employers’ liability insurance covers you in the event that one of your employees falls ill, gets injured as a result of the work they do for your business. It can also cover death, though you should check with your insurer or broker. This type of cover can pay out for compensation to them as well as any related legal fees.
For example, imagine that you run a shop and recently put up a new window display. If one of the installations wasn't correctly secured and fell on an employee during their shift, giving them concussion, the worker could make a claim against you. This is where employers' liability insurance as part of your shop insurance package could cover the cost of compensation and legal fees if the worker made a successful claim against you.
Or imagine that you run a plumbing business. If one of your employees was injured while installing a shower in a customer's new bathroom, they could make a claim for compensation. If their claim was successful, you would be required to pay out – but employers' liability insurance could cover the cost of the compensation due as well as any legal fees associated with the claim.
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It’s important to have cover in place for the whole time you are an employer. You could get a claim from a current or a former employee, as some illnesses or injuries may not become apparent until after an employee has stopped working for you.
In fact, having employers’ liability insurance is a legal requirement. If you employ anyone working in the UK who isn't a member of your family, you must have cover – and if you don’t, you could face a fine of £2,500 for each day you’re not properly insured.
There is an exception to this: if you run a limited company and employ any family members, you will still need employers’ liability insurance. If you’re unsure, it’s a good idea to talk to an insurer about suitable cover.
What doesn’t employers’ liability insurance cover?
The clue is in the name with employers’ liability insurance – it covers your responsibility as an employer. This means it only covers your employees for work they do for your business.
Employers’ liability insurance does not cover:
- employee injuries which are unrelated to the work they do for you
- injuries to members of the public while interacting with your business
- damage to third party property through your work
- injuries suffered by you, either while at work or away
If a member of the public was injured, died, or suffered loss or damage to their property as a result of your work, you could be held responsible and required to pay compensation. Public liability insurance could cover you in this instance.
If you were injured, or died, while working, you could lose income or your dependants may need financial support. You wouldn’t be covered by employers’ liability insurance here. Instead, personal accident cover could pay out to cover your lost income and any medical bills you may incur or provide compensation to your beneficiaries.
If a key employee in your business was injured while on holiday, for example, and couldn’t work, you wouldn't be covered by employers’ liability insurance as the injury was not a result of the work they did for you. However, if the employee was named on your personal accident policy, then this policy may pay out instead.
Do I need employers’ liability insurance?
Yes, employers’ liability insurance is a legal requirement if you employ anyone to work in the UK who's not part of your immediate family. If you run a limited company, you need cover even if you only employ family members. What’s more, limited companies with directors who own less than 50% of shares in the business will also need employers’ liability insurance. For example, if two directors split the shares 60:40, the director owning 40% of the business would be considered an employee.
How much employers’ liability insurance do I need?
By law, employers must have an employers’ liability policy worth at least £5 million from an authorised insurer. You can check whether your insurer is authorised on the Financial Conduct Authority (FCA) website.
How much cover you need above this limit is up to you. You should consider the nature of your business and the risks associated with your business activity. For example, plumbers or electricians may face more risks on a day-to-day basis than officer workers, and therefore may want a higher level of cover.
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Kristina is a writer at NerdWallet. A recent graduate trading French for finance, she has experience creating content for student newspaper Cherwell and an edtech company. Read more