There's a lot of half-truth floating around liability insurance – partly because the product is complex, partly because few people read the terms all the way through. We've collected the five myths we encounter most often in practice. Next to each one, we've added what's actually true instead – in plain sentences, with no hedging.
- Liability insurance doesn't pay out for everything – but for what it's designed for, it's the most important line of defence.
- Company size offers no protection: a compensation claim against a small business can be substantial too.
- A chamber's or client's minimum requirement is an entry ticket, not proper sizing.
Myth 1: “Liability insurance pays out for everything”
No: exclusions and a deductible exist in every policy, and fixing your own defective work isn't an insurable loss either. The good news is that the boundaries are predictable – anyone who spends ten minutes on the map of exclusions before signing won't be caught out when a claim happens.
Myth 2: “I'm a small business, I don't need it”
The injured party's claim scales with the loss, not with your company size. The consequences of water damage to a listed flat, or a botched tax return, can be substantial even for a one-person business – only there, there's no reserve behind it to absorb the hit. A separate article explores this question: do I need liability insurance.
Myth 3: “I've got the chamber minimum, so I'm covered”
The minimum is enough to let you work – not necessarily enough to cover a larger loss. Your real exposure depends on your contract portfolio, the value of your projects, and the possible chains of loss; it's worth knowing the gap between the two. On sizing: the limit article and minimum-limit expectations.
Myth 4: “If I take out a policy now, it also covers my past work”
It depends on the terms – and that's exactly why the retroactive date is a key concept. For claims-made professional indemnity cover, what matters is how far back the insurer agrees to accept claims now being asserted for work done in the past. Anyone who overlooks this when switching insurers can open up a gap in cover: claims-made article, pitfalls when switching.
Myth 5: “When a claim happens, I have to call my lawyer first anyway”
The path for a routine claim is simpler: document it, then report it via the insurer's claims line or online portal – the insurer also takes part in the legal defence under the policy terms. A lawyer may be needed for a disputed or complex case – and the broker steps in when a case gets stuck: first steps, the broker's role. If you're curious about more myths, the myth-busting collection covers fifteen further claims, with quick one-line answers.
Where do these myths come from?
They stem from three sources. The first is well-meant generalisation: “the insurer paid out for the business next door, so mine will pay out too” – except the content of two policies is rarely identical. The second is the car-insurance analogy: everyone knows MTPL, and carries those assumptions over to business liability insurance – but the world of claims-made logic, the list of insured activities and extensions works differently. The third is silence: we typically only talk about insurance when a claim happens, by which point it's the exceptions and disappointments that make the stories. The best remedy against myths, then, isn't belief but knowledge of your own policy – half an hour with the checklist, and facts take the place of myths.
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