A lawsuit or a claim can happen to anyone, even the most careful business owner. According to Fulbright’s Litigation Trends report, nearly 90 percent of companies will face commercial litigation in their lifetime. And with 36 to 53 percent of small businesses getting involved in litigation each year, odds are good that your business will eventually be affected.
That’s why liability insurance is a must for any entrepreneur. Liability insurance can help protect your business from the financial ruin that a lawsuit can bring. But with so many types of liability insurance available, it can be challenging to know which one is right for your business.
Here’s a quick guide to everything you need to know about liability insurance for entrepreneurs.
What’s Liability Insurance?
Liability insurance is a type of insurance that can help protect your business from the financial damages resulting from a lawsuit or claim. If your business gets sued or held liable for damages, your liability insurance policy can help pay for the resulting legal fees and expenses.
Is Business Liability Insurance the Same as Personal Liability Insurance?
Personal liability insurance, also known as an umbrella policy, can protect your business, but it’s not the same as business liability insurance. Personal liability insurance only kicks in after you’ve exhausted the coverage of your other policies. It is usually used to cover home-based businesses or small businesses.
On the other hand, business liability insurance can help cover damages even if they exceed the limits of your other policies. That means you’re less likely to pay out of pocket for any damages.
What Does Business Liability Insurance Cover?
Different types of liability insurance can cover various risks. The most common types of business liability insurance are the following:
General Liability Insurance
This coverage is the most basic form of liability insurance for businesses. General liability insurance can help cover claims about your business causing bodily injuries or property damage to another person or their belongings.
Product Liability Insurance
If your business sells products, you’ll need product liability insurance to help protect against claims that your products caused injuries or damages. Product liability insurance can help cover the costs of defending your business in a lawsuit and any damages that may be awarded to the plaintiff.
Professional Liability Insurance
Also known as errors and omissions insurance, professional liability insurance can help protect your business against claims that you made a mistake or failed to deliver on your professional services. This coverage can be vital for consulting, accounting and financial planning companies.
Data Breach Insurance
Any company that collects or stores sensitive customer information should consider data breach insurance. This coverage can help protect your business against the costs of a data breach, including the cost of notifying victims, providing credit monitoring services, and dealing with lawsuits. Many consider this coverage as cyber liability insurance.
Employment Practices Liability Insurance
You may want to consider employment practices liability insurance if you have employees. This coverage can help protect your business against discrimination, sexual harassment and wrongful termination claims.
How Much Does Business Liability Insurance Cost?
The cost of business liability insurance will vary depending on various factors. But in general, liability insurance policies for small companies typically start at around $50 per month. This figure excludes add-on riders or specialized coverage, which can cost extra.
Below are other factors that may affect the cost of your business liability insurance:
Business Industry
Certain businesses are at a higher risk for lawsuits than others. That leads to a higher cost of insurance for some companies. For example, companies in the food and beverage industry may pay more for product liability coverage than businesses in the home rental sector.
Business Size
The size of your business will also affect the price of your liability insurance. Larger companies pay more for their premiums because they have more risk exposure. Insurance companies use this strategy to spread out the cost of potential claims.
Location
The location of your business can also affect your liability insurance rates. If you’re in a city with a higher crime rate, you may pay more for general liability coverage than a company located in a rural area.
Claims History
If your business has a history of claims, you may pay more for your liability insurance. That’s because you’re seen as a higher risk to the insurance company, which means they’re more likely to have to pay a claim.
Deductible
The deductible is the amount you must pay before your insurance policy kicks in. A higher deductible will usually mean a lower premium. But that also means you’ll have to pay more out of pocket if you have a claim.
How to Get Business Liability Insurance
Getting a business liability insurance policy is relatively easy. Here are some tips to help you get started:
Compare between offers
The best way to get business liability insurance is to compare quotes from multiple insurance companies. Make sure you compare apples to apples by getting quotes for the same coverage limits.
Seek professional support
You can also work with an insurance broker to help you find the right policy for your business. A broker can provide multiple quotes from different insurance companies and help you compare your options. They can also answer any questions you have about coverage.
Read the fine print
Once you’ve selected a policy, ensure you understand the coverage and read the fine print. You don’t want to be caught off guard by exclusions in your policy. Don’t hesitate to ask your broker or insurance company if you have any questions.
Review your policy
Review your policy periodically to ensure it meets your needs. Your business may have changed since you first bought your policy, so your coverage requirements may also change.
Suppose you’re transferring to a different business location. In that case, you must inform your insurance company when relocating your business. This way, they can adjust your policy accordingly.
Now that you understand the basics of business liability insurance, you can start shopping for a policy that meets your needs. With the above tips in mind, you can find the right coverage for your business.