At a glance
- A Public & Product Liability limit sets the maximum amount the insurer may pay for covered claims, subject to the policy wording.
- The appropriate limit depends on legal and contractual requirements, potential injury or property damage, product exposure and business scale.
- Higher limits provide more financial capacity for covered claims but may increase the premium without broadening what the policy covers.
Choosing the right Public & Product Liability insurance policy involves more than simply finding the lowest premium option. You also need to select a liability limit, which is the maximum amount the insurer may pay for covered claims, as set out in the policy wording. If a claim amount exceeds the limit stated in the policy, your business may be responsible for the remaining costs.
There is no single limit that suits every business. A graphic designer working from a home studio will have different liability exposures from a contractor supplying equipment on a large building site. The limit amount to consider depends on the business’s activities, work locations, products, operating scale and contractual requirements.
This article explains why an unsuitable limit can be costly, the factors you should consider when choosing a limit and when $5 million, $10 million or $20 million of Public & Product Liability cover limit may make sense for your business.
Why Choosing the Wrong Limit Can Be Costly
Choosing a limit that is too low can have significant financial consequences. For a small business, having to fund the part of a covered claim that exceeds the available limit could affect its cash flow and ability to continue operating.
An insufficient limit can also cause problems before an incident occurs. A client, landlord, venue or government organisation may require a specified amount of cover as a condition of signing a contract, leasing a space or beginning work. Holding cover with a limit less than the required amount could prevent you from taking on the opportunity or place you in breach of an agreement.
Choosing the highest available limit is not automatically the right answer either. A higher limit may increase the premium, and the additional cover may go beyond what the business’s contractual requirements and risk profile justify. Just because your policy limit is higher does not broaden the types of claims it covers or remove any of its exclusions.
The aim is to select an amount that meets your external requirements and reasonably reflects the potential cost of the risks your business may face.
Factors That Determine the Right Liability Limit
Choosing an appropriate Public and Product Liability limit requires assessing both the cover your business must hold and the exposure created by its work. The following factors should be considered together when comparing the policy limits:
- Legal, Client and Industry Requirements: Laws, licensing rules, permit conditions, contracts, leases, venue agreements and industry membership rules may specify a minimum Public & Product Liability limit. Check every requirement that applies to your business before selecting a limit, as each may include different insurance conditions.
- Nature and Location of the Work: Consider the activities your business performs and where the work takes place. For example, a yoga instructor running group classes in hired studios has regular physical interaction with participants, while an online service business without client visits generally has less Public Liability exposure.
- Potential Severity of a Third-Party Injury: Consider how seriously someone could be injured through your business activities and the costs that could follow. A severe injury involving ongoing treatment, rehabilitation, lost income and compensation could result in a much larger claim than a minor incident.
- Value of Third-Party Property at Risk: Working inside a client’s home or office, public spaces or event venues creates the possibility of damaging property you do not own. Consider the value of the building, equipment and other items on site, as well as whether damage could disrupt the client's or other business’s operations.
- Products Supplied by the Business: If you sell, supply, deliver, install or repair products, consider how they are used, the harm they could cause and how many customers might be affected by the same issue.
- Scale and Reach of the Business: Look at the number of employees, contractors, customers, locations, events and projects involved in your operations. More activity can create more opportunities for incidents and claims.
- Cost of Maintaining the Limit: A higher liability limit typically increases the premium. Compare the cost of each option with your budget, contractual requirements and potential claim exposure. The selected limit should be affordable to maintain, but price alone should not determine your choice.
When Each Coverage Limit Makes Sense
Here is how these factors typically apply at each limit level.
$5 Million Limit
A $5 million limit may be considered where no contract, lease, permit or industry rule requires a higher amount and the business has relatively limited Public & Product Liability exposure. This could include a sole trader who provides desk-based services remotely, has limited in-person contact with customers, rarely works at client premises or public venues and does not supply physical products. However, business size or structure alone does not determine whether a $5 million limit is sufficient. The business’s activities, potential claim exposure and external requirements still need to be assessed.
$10 Million Limit
A $10 million limit may be considered when required by a client, landlord or venue, or when the business has more regular interaction with customers, clients and the public. It may also be relevant to businesses operating in medium-risk industries, handling mid-scale projects and supplying products to a broader customer base, all of which could result in costly claims. This limit provides a higher maximum amount for covered claims than $5 million, but it does not broaden the types of incidents covered.
$20 Million
A $20 million limit is suitable for businesses with substantial contract values, high-risk operations or strict client and venue requirements. It may be appropriate for organisations working on high-value contracts, critical infrastructure or projects where a single claim could have severe financial consequences. It also gives businesses facing higher litigation risk or strict contractual requirements more room to absorb a large claim without exceeding the limit. It may be relevant where the business operates in busy public environments, works around high-value third-party property or distributes products internationally.
Choosing between a $5 million, $10 million and $20 million limit in public and product liability cover comes down to weighing your contractual requirements, risk exposure and budget together, rather than guessing at a figure. The right limit meets your clients', contracts' or venues' requirements, reasonably reflects the risks specific to your business and is one you can comfortably maintain as your business grows.
Sami Insurance offers public and product liability cover up to $20 million, tailored to your occupation and how your business operates, subject to eligibility, policy terms, conditions, limits and exclusions. Get a quick quote online and see what limit fits your business.
FAQs
Is public and product liability insurance compulsory for my business?
It is generally not a legal requirement for most businesses in Australia, though it can be a licensing condition for certain trades, such as electricians in Queensland and plumbers in Victoria. Even where it is not mandatory, many leases, venue hire agreements, council permits and client contracts require you to hold it before you can operate or take on the work.
Can a business increase its liability limit later as it grows?
Yes, you can review and adjust your liability limit as your business changes. When you take on new contracts, expand your client base or increase your operations, it is worth reassessing whether your current limit still reflects your risk profile. Eligibility applies, and any change may affect your premium.
Does a higher liability limit cover more types of claims?
Not by itself. Choosing a $10 million or $20 million limit instead of a $5 million increases the maximum amount the insurer pays for covered claims. It does not turn excluded incidents into covered claims or add protections that are not included in the policy wording.
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The Sami Team
