Estimated reading time: 10 minutes
TL;DR
Public liability insurance is one of the most broadly applicable covers for Australian small businesses. It’s not always legally required, but it’s frequently required by clients, landlords, and contracts and the cost of a single uninsured claim can easily exceed an entire year of premiums many times over. Most businesses should have it from day one.
Table of Contents
What is public liability insurance?
Public liability insurance protects your business against claims for injury or property damage made by a third party, like a client, a visitor, a member of the public, or anyone who isn’t your employee, as a result of your business activities. It covers your legal defence costs, compensation payments, and court settlements if someone holds your business responsible for harm they’ve suffered.
Products liability, which is typically bundled into the same policy, extends that protection to cover claims arising from a product your business makes, sells, or supplies.
In plain terms: if something goes wrong involving your business and someone else gets hurt or their property gets damaged, this is the cover that keeps it from destroying what you’ve built.
Key facts
- $10 million is a widely cited benchmark in the Australian market, and in Pocket’s experience. The majority of commercial leases and corporate client contracts specify this as the minimum required limit.
- Legal defence costs alone (even when you win) frequently exceed the original compensation amount claimed
- Public liability and professional indemnity are two different policies covering two different types of risk, many businesses need both
- Products liability claims can arise years after a product was made or sold, meaning cover at the time of sale matters even if your business has changed since
What does public liability insurance cover?
Public liability
Public liability covers your business against third-party claims for:
| Claim type | Example |
|---|---|
|
Bodily injury |
A client trips over a cable in your office and breaks their wrist |
|
Property damage |
You spill coffee on a client’s laptop during a meeting |
|
Legal defence costs |
A supplier sues you alleging your staff damaged their equipment on-site |
|
Court settlements |
A court finds you liable for a visitor’s injury and awards compensation |
|
Medical expenses |
Emergency and ongoing treatment costs for an injured third party |
An important point on legal costs: even if you’re not at fault, defending a claim properly costs money. A disputed claim that goes through the court system can generate tens of thousands in legal fees before a decision is reached. Your policy covers those costs regardless of outcome.
Products liability
Products liability (typically included in the same policy) covers claims arising from products your business makes, sells, distributes, or supplies:
| Claim type | Example |
|---|---|
|
Injury from a product |
A customer is injured by a faulty tool you sold |
|
Property damage from a product |
A cleaning product you sell corrodes a customer’s benchtop |
|
Defective product claims |
A product fails to perform safely and causes loss |
|
Goods supplied as part of a service |
Materials you installed cause damage after the job is complete |
Products liability claims have a long tail. A product sold two years ago can generate a claim today, which is why maintaining continuous cover matters for businesses that sell physical goods.
One important point for importers: if your business imports goods for sale in Australia, you are treated as the manufacturer under the Australian Consumer Law — even if you didn’t make the product. This means you carry the same products liability exposure as a manufacturer, and cover is not optional.
What public liability insurance doesn't cover
Understanding the exclusions is just as important as knowing what’s included:
| Not covered | What covers it instead |
|---|---|
|
Damage to your own property or equipment |
Business property / contents insurance |
|
Your employees’ injuries |
Workers’ compensation insurance (compulsory if you employ) |
|
Your own professional errors or advice |
Professional indemnity insurance |
|
Intentional or criminal acts |
Not insurable |
|
Contractual liability |
Only covered if specifically included in your policy |
|
Motor vehicle incidents |
Commercial motor insurance |
|
Your own financial loss from a claim |
Varies – speak to a broker |
The most common coverage gap founders encounter is confusing public liability with professional indemnity. They cover fundamentally different things. See the next section.
Public liability vs professional indemnity: what's the difference?
This is the question Pocket brokers get asked most often. The distinction matters because many businesses need both and assuming one covers the other is how business owners end up with gaps.
| Public Liability | Professional Indemnity | |
|---|---|---|
| What it covers | Physical injury or property damage to a third party | Financial loss caused by your professional advice, services, or errors |
| Who claims | Injured person, property owner | Client who suffered financial loss |
| Classic example | Client trips over your cable, breaks their wrist | Client acts on your advice, loses money, blames you |
| Who needs it | Almost any business with physical interaction with clients or the public | Anyone who provides professional advice, designs, or services for a fee |
| Legally required? | Not generally, but frequently required by contract | Compulsory in some regulated professions |
Do you need both? If your business involves both physical client interaction and professional advice or services, the answer is almost always yes. A physiotherapist, a building consultant, a financial planner – all have exposure on both sides.
Do you need public/products liability insurance?
Almost certainly yes, if:
- Clients or members of the public visit your premises
- You visit clients at their premises to deliver your service
- You work at third-party sites (tradies, contractors, event staff)
- You sell, supply, or distribute physical products, online or in person
- Your commercial lease requires it (most do)
- A client contract specifies minimum liability cover (increasingly standard)
- You operate in a co-working space or shared office
Probably yes, even if:
- You work from home and rarely see clients in person. If you sell products, you have products liability exposure regardless of where you work
- You think your work is low-risk. Liability claims are often for incidents that felt trivial at the time
- You’re a sole trader. Your personal assets can be pursued if your business can’t cover a judgment
Potentially not required, if:
- You’re a purely digital, service-only business with no physical interaction with clients, no products, and no premises requirements…though even then, a lease or a client contract may bring you into scope
The practical reality: most operating businesses need public liability cover. The question for most founders isn’t whether to get it, but how much and under what terms.
How much public liability cover do you need?
Coverage in Australia is typically sold in the following limits:
| Coverage limit | When it’s typically adequate |
|---|---|
| $5 million | Sole traders and micro businesses with limited client interaction and no contracts specifying higher limits |
| $10 million | Most small businesses – standard requirement for commercial leases and the majority of client contracts |
| $20 million | Growing businesses, those working with corporate or government clients, or businesses in higher-risk industries |
| $50 million+ | Large events, major construction, export businesses, or specific contractual requirements |
The most common mistake: underinsuring because a lower limit premium looks attractive, then discovering that a key client contract requires $10 million or $20 million only after you’ve already purchased a $5 million policy.
Before buying, check: your lease agreement, your client contracts, your industry association requirements, and your licensing conditions. These four sources will usually tell you the minimum you need — and it’s frequently $10 million.
What does public liability insurance cost in Australia?
Public liability premiums vary significantly and the range is wide enough that any single figure would be misleading. The factors that influence your premium include your industry, your annual revenue, the nature of your work, your claims history, your coverage limit, and whether your activities carry higher physical risk.
Rather than a ballpark number that may not reflect your situation at all, the most useful thing we can do is give you an accurate quote based on what your business actually does.
Get a quote with Pocket → or book a free call and we’ll give you a real number.
Frequently asked questions
1. What is underinsurance in Australia?
Underinsurance occurs when your sum insured is lower than the actual cost to replace or rebuild the insured asset. When you make a claim, the insurer applies the averaging clause and your payout is reduced proportionally meaning you absorb part of the loss even though you’re insured.
2. What is the averaging clause?
The averaging clause is a standard policy provision that reduces your payout if you’re insured for less than the true replacement value. If you’re insured for 70% of true value, you receive roughly 70% of any claim on partial losses as well as total ones.
3. Does the averaging clause affect partial claims or only total loss?
Both. It applies to any claim where you’re underinsured like a partial fire, flood, or storm damage. Most business owners assume it only applies if the whole building burns down. It doesn’t.
4. How do I know if my building is underinsured?
If your sum insured is based on purchase price or market value rather than the current cost to demolish and rebuild, you’re likely underinsured. Commission a quantity surveyor’s reinstatement valuation, it’s not a requirement, but it gives you the most accurate rebuild figure and puts you in a much stronger position at claim time.
5. What’s the difference between market value and reinstatement cost?
Market value is what your building would sell for. Reinstatement cost is what it would cost to rebuild it from scratch today including demolition, current construction costs, and professional fees. For insurance, reinstatement cost is the relevant figure and it’s often significantly higher than market value.
6. How often should I review my sums insured?
Annually at minimum, ideally 30–60 days before renewal. Also review mid-year if you’ve had significant changes like new premises, major revenue growth, new equipment or a fitout.
7. What is an indemnity period in Business Interruption insurance?
The indemnity period is how long your BI policy pays out after an insured event. Pocket recommends a minimum of 18–24 months for most SMEs, given commercial rebuild timelines and the complexity of restoring operations after a major loss.
8. Will my insurer tell me if I’m underinsured at renewal?
Insurers renew based on the declared values you provide. The averaging clause is applied at claim time. Your broker should proactively flag underinsurance risk at renewal, if that’s not happening, it’s worth asking.
9. Is underinsurance common in Australia?
Yes. The Australia Institute estimated in 2025 that approximately 1.4 million Australian homes were uninsured or underinsured. The Insurance Council of Australia notes that underinsurance is unfortunately common across Australia, compounded by the sharp rise in construction costs, and equipment prices since 2021. (Sources: Australia Institute, 2025; Insurance Council of Australia)
Related guides
Is your cover keeping pace with your business?
Underinsurance is almost always unintentional and almost always fixable. Pocket reviews your coverage at every stage of growth to make sure your sums insured reflect where your business actually is today, not where it was three years ago.
Book a free coverage review with Pocket →
Call: 1300 475 092 | Email: hello@withpocket.com.au
With Pocket is a business name of Insurance Services Holdings Pty Ltd (ABN 36 612 629 295, AFSL 491165). Member of NIBA and part of the Steadfast Group. This article is general in nature and does not constitute financial advice. Consult a licensed broker for advice specific to your circumstances.
Sources: CoreLogic Cordell Construction Cost Index (CCCI), 2025; Australia Institute, Polling – Home & Contents Insurance, 2025; Insurance Council of Australia, The Risk of Underinsurance (insurancecouncil.com.au); Pocket broker experience.
