$5 million, $10 million or $20 million public liability: how to choose your limit

Choose your public liability limit by starting with the highest limit any lease, council permit, venue or client contract requires of you, then asking whether a single serious injury caused by your work could exceed it. In Australia, $10 million and $20 million are the limits most commonly requested, and $5 million suits only low-risk businesses with no contract requiring more. Because most claims are small, moving from $10 million to $20 million usually adds much less to the premium than the first $10 million cost, so get both prices before deciding.

This guide is part of the business insurance quote checklist. Premiums are illustrative. Once the limit is settled, the next decisions are the excess and lining up the quotes.

What the limit means

The limit of liability is the most the insurer will pay for a claim or series of claims covered by the policy. Check three details in the schedule:

• Any one occurrence or in the aggregate. Public liability is usually limited per occurrence, so several unrelated claims in a year can each use the full limit. Products liability is usually limited in the aggregate for the policy period, so all products claims share one limit.
• Defence costs. Some policies pay legal costs in addition to the limit; others include them within the limit, which reduces what is left for damages.
• Sub-limits. Extensions such as property in your care, custody and control, or damage to underground services, often have lower sub-limits.

Who asks for which limit

These are common patterns, not rules. Always read the specific requirement.

How a serious injury claim can add up

Personal injury damages in Australia are assessed under each state's civil liability legislation, which caps some heads of damages (such as general damages for pain and suffering), but not all. A severe brain or spinal injury to a young person can involve:

• lifetime care and accommodation costs;
• loss of earning capacity over decades;
• medical and rehabilitation costs;
• legal costs.

Illustrative example: lifetime care of $180,000 a year for 40 years, discounted for early payment, plus lost earnings, can produce a total in the millions, before legal costs. These claims are rare, but they are the reason limits exist. A cafe customer's slip usually produces a claim in the thousands or tens of thousands; a roofing accident that injures a passer-by can produce a claim of a different order.

What a higher limit costs: illustrative prices

Illustrative quotes for a landscaping business in NSW, including GST and stamp duty:

In this example, doubling the limit from $10 million to $20 million adds $130, or 11.2%. That pattern is common because insurers expect very few claims to reach the higher layers, but the actual increase varies by insurer and occupation, so ask for each limit.

A decision checklist

1. List every limit that is required of you. Your limit must meet the highest one.
2. Think about your worst realistic accident. Could your work injure several people, a child, or someone on a busy street? Could you cause a fire in a building?
3. Consider growth. If you plan to bid for larger contracts, a $20 million limit may be needed soon.
4. Check products liability. If you supply goods, look at the aggregate products limit as well.
5. Get prices for two or three limits and use the liability quote comparison tool with a claim above your lowest limit to see the exposure.
6. Check defence costs and sub-limits in the wording.

Worked example: testing a limit with the tool

An illustrative builder compares a $10 million policy at $2,400 and a $20 million policy at $2,620. Enter a claim of $13,000,000:

• $10 million policy: the insurer pays its $10,000,000 limit, so the builder pays the remaining $3,000,000. Total cost: $2,400 + $3,000,000 = $3,002,400.
• $20 million policy: the insurer pays the claim less any excess. With no excess on injury claims, the total cost is the $2,620 premium.

The $220 difference in premium buys protection against a $3 million exposure. Whether that exposure is realistic depends on the work, but for building trades many advisers would treat $20 million as the minimum.

Mistakes to avoid

• Assuming the default limit on an online quote is what your contracts need.
• Forgetting that products liability may share one aggregate limit for the year.
• Overlooking low sub-limits for property in your care, which can matter more than the headline limit for trades working on clients' property.
• Raising the limit mid-year without telling clients who hold your old certificate of currency.

Frequently asked questions

Can I increase my limit during the policy year?

Usually yes. The insurer charges an additional pro-rata premium and issues an updated certificate of currency.

Does a higher limit mean the insurer pays out more easily?

No. The limit only caps the amount; whether a claim is covered depends on the wording, exclusions and the facts.

Is $5 million ever enough?

For a low-risk business with no contract or lease requiring more, a $5 million limit may be acceptable, but many businesses find the saving over $10 million is small.

What happens if a claim exceeds my limit?

You are personally or corporately liable for the excess over the limit, which could threaten the business or, for sole traders, personal assets.

Sources

• Federal Register of Legislation — Insurance Contracts Act 1984
• NSW Legislation — Civil Liability Act 2002 (NSW), one of the state laws governing personal injury damages
• business.gov.au — public liability insurance guidance
• ASIC — insurance conduct and disclosure