Oh, absolutely, business owners need it. If you run a small business, you are engaging with customers in some capacity, which makes it essential to protect 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 provides 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 widely used type of business insurance coverage. It safeguards your business in the event that a client or visitor is injured on your premises. Additionally, general liability insurance offers protection for damages you may cause while conducting business. For instance, if you are a contractor and accidentally break a customer’s window while setting up your extension ladder, this insurance will cover the costs. Moreover, general liability insurance protects your business against claims related to reputational harm, such as allegations of libel or slander, as well as advertising injuries where someone is harmed due to 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 provide guidance to a tax return client, suggesting an alternative method for handling equipment depreciation to help lower their tax bill. Two years later, the client received a notice from the IRS stating that your advice was incorrect, resulting in the client owing back taxes. This is where professional liability coverage would come into play, offering protection in such situations.
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.
Medical Expenses
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.
Property Damage
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 for medical expenses, the client sued for additional money. 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 you rent.
- 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 obtaining general liability insurance or professional liability insurance, consult with a legal professional about establishing your business as a limited liability company (LLC). Creating an LLC allows you to protect your finances by keeping your business assets separate 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.
- Obtain quotes for both general liability insurance and, if necessary, professional liability insurance, and then compare them.
- 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 should have general liability insurance, and many may also require 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
The Hartford offers a wide variety of additional insurance products, and can also provide financial advice.
State Farm
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
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
Biberk Insurance is a favorite for subcontractors who are working at third-party locations. Biberk offers many insurance policy options.
Progressive
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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