Do You Need Small Business Liability Insurance?
Oh, absolutely business owners do. If you’re operating a small business, you’re interacting at some level with a customer and this means protecting yourself with insurance.
Although the cost varies by type of operation, the business insurance benefits far outweigh the cost. And liability insurance coverage helps you protect your business. There are many types of business insurance products, making liability insurance a basic necessity for small business owners.
Let’s see how professional and general liability insurance coverage provide protection for you.
What is Liability Insurance for Small Businesses?
There are two basic types of liability insurance, professional and general liability insurance. Business owners could need one type or both:
General liability insurance – General liability insurance is the most common business insurance coverage. General liability coverage protects your business if a client or visitor is injured at your place of business.General liability insurance also provides protection for damages you cause while doing business. For example, you’re a contractor and you break a customer’s window when you’re putting up your extension ladder. General liability insurance also will protect your business against claims of reputation harm (someone claims libel or slander) and advertising injury (someone is hurt by your product claims).
Professional liability – Professional liability coverage is commonly called Errors and Omissions insurance. It protects against errors in the service provided. For example, you’re a financial planner and an investor’s portfolio goes south. Or you’re a couple’s counseling therapist and someone believes you gave bad advice.
Which Businesses Need Liability Insurance?
You may need both general liability insurance and professional liability insurance.
You need general liability insurance to operate a business. Without general liability coverage, you are leaving yourself open to lawsuits regarding your products and you are not covered for property damages you cause or accidents that happen to a visitor to your business. If a salesperson or visitor has a slip/fall injury at your place of business, you’re not covered.
You may need both types of business insurance if you provide professional services. Here’s an example: You are an accountant. One of your tax return clients slips on a wet floor in your office bathroom, tearing an ACL. That’s where general liability business insurance kicks in.
You give advice to a tax return client, recommending a different way to handle equipment depreciation to reduce taxes. Two years later, the client hears from the IRS. Your advice wasn’t correct and the client owes back taxes. That’s where professional liability coverage would provide coverage.
What Does General Liability Insurance Cover?
Here’s a more specific breakdown of what small business owners need to know about general liability insurance coverage.
General liability insurance policies cover you if a visitor or client suffers a bodily injury at your place of business. The person’s bills for medical treatment could be astronomical, and customer injury can involve medical bills plus court costs and attorney fees – an obvious reason for you to carry general liability insurance.
If you go to clients’ properties to do work, your general liability policy will cover you if you cause property damage. For example, you’re a landscaper and you cause property damage to a building when a rock discharges from a mower, or you run over a row of hydrangeas. In either case, you have damaged a person’s property while performing services, and you’re legally responsible.
Legal Defense Costs
One of the highest payouts an insurance company pays out on general liability claims isn’t for bodily injury – it is for the cost of legal fees. For example, the slip/fall bathroom injury to a client’s ACL causes stress and loss of income. In addition to seeking payment of medical expenses, the client sues for additional monies. Your general liability policy would cover legal defense costs, including legal fees and related costs.
Personal and Advertising Injury
General liability business insurance covers you if someone claims your product was promoted by false advertising. For example, you sell a mattress that is ‘guaranteed to reduce back pain’ and someone claims it didn’t work.
Personal injury claims come from someone who believes you have slandered or libeled their business. For example, you’re operating a food truck and one of your employees tells a customer that someone else’s food truck business doesn’t maintain cleanliness standards.
What Does Professional Liability Insurance Cover?
Errors and Omissions
This is broad coverage and protects you against a general liability claim of negligence, misrepresentation, or violation of good faith.
As you can imagine, these are general terms and claims typically involve legal fees. Your insurance company will cover defense costs including legal fees, the amount of a settlement/judgment (up to what’s set in the policy), and administrative costs (such as preparing documentation).
What is Not Covered by Business Liability Insurance?
Now that you know what is covered, you need to know what isn’t covered with this type of small business insurance:
Commercial property insurance – Your general liability covers you if you damage someone else’s property, but to protect your own business property you need commercial property, which protects your building and business equipment. You may need commercial property insurance even if you operate from your house – unless you can get a “rider” from your homeowner’s policy to cover your business. You need commercial property even for premises rented by you.
Commercial auto insurance – Yes, you need a separate commercial auto policy to cover a vehicle or vehicles you use to conduct business operations.
Worker’s compensation – If you have employees, you need a separate worker’s compensation policy. In this age of subcontractors, many small business owners are opting to buy worker’s compensation policies that cover part-time and/or temporary workers, even 1099ers.
Cyber Security – Many insurance companies are opting to either add this to their liability coverages or offer it as a separate policy. For example, you may be able to get a Business Owner’s policy which includes general and/or professional liability coverage, plus cyber security. Cyber security is needed for all normal business operations where customers’ personal data is needed as part of doing business. It’s one of the most overlooked and needed small business insurance products.
Small Business General Liability Insurance Cost
How much does general liability cost? The insurance policy cost varies by specific business and the business’s amount of revenue. It can also vary by your chosen coverage limits. If you choose an insurance company that offers umbrella coverages, such as a business owner’s policy, that will lower your general liability insurance cost.
In general, you can expect to pay as little as $29 a month for basic business liability insurance coverage.
Small Business Professional Liability Insurance Cost
Rates vary from one insurance company to another. Professional liability business insurance varies by type of business and annual revenue.
In general, you can expect to pay as little as $20 a month for basic coverage limits.
How to Choose the Right Liability Insurance for Your Small Busines
Before you get general liability insurance or professional liability insurance, speak with a legal professional about setting up your business as a limited liability company. By forming an LLC, you can get financial protection by separating your business assets from your personal assets.
Here are some tips for the small business owner:
Network with other small business owners
Shop online. With just a few clicks, you can start looking at quotes.
Shop in person.
Get a general liability insurance quote and a professional liability quote if needed, and compare.
Carefully consider the deductible. With any claim, your rates will increase. Is it better to have a higher deductible – intending to pay for damages and not make a claim? How much could you afford to pay out of pocket?
Evaluate your quotes.
As a final deciding factor, call the customer service line that you’d use to make a claim. See if you would be able to tolerate the wait time.
Best General Liability Insurance for Small Business
Every business owner needs general liability insurance. Many also need professional liability insurance.
We’ve chosen companies which provide both. These companies also offer a Business Owners Policy or BOP, which can help you save money by combining policies under one umbrella.
These companies also offer cyber insurance and other insurance products. For example, Progressive offers commercial auto insurance.
The Hartford offers a wide variety of additional insurance products, and can also provide financial advice.
State Farm offers riders to homeowners policies for many home-based businesses. If you have set up your business at home, you can save money by buying a rider instead of a separate policy.
NextInsurance is the go-to for contractors and landscapers who want to set up a quick policy. NextInsurance also offers policies for daily, weekly or monthly periods of time.
Biberk Insurance is a favorite for subcontractors who are working at third-party locations. Biberk offers many insurance policy options.
Progressive is known as an auto insurance company but provides many types of business insurance. Since it offers both a general liability insurance policy and commercial auto, you may be able to save money by using the same carrier to get both types of insurance.
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This article, “Do You Need Small Business Liability Insurance?” was first published on Small Business Trends