As a small business owner, there are lots of challenges that you are faced with daily, but the good news is that a good number of them can be taken care of through liability insurance for small businesses.
This insurance is very important because it safeguards your business from different kinds of risks. You might be wondering if this liability insurance is really that important. Well, the protection of your business from risks and losses is one of the most important aspects of owning a business. So you can see that it’s important, right? Yes.
There are several types of liability insurance for small businesses, which we have discussed in this article. Before we go into them, let’s first understand what liability insurance is.
What is Liability Insurance?
Liability insurance is a type of insurance that helps to protect you and your business from the financial risks that are associated with lawsuits and claims when running a business.
This insurance helps to cover the costs associated with legal defense, settlements, and judgments in a situation where your business is found liable for causing harm or damage to another party.
These claims can be related to bodily injury, property damage, or other damages caused by the business.
Just as mentioned before, there are several types of this insurance, so let’s check them out.
Types of Liability Insurance for Small Businesses
The following is a list of the types of liability insurance for small businesses:
- General Liability Insurance
- Professional Liability Insurance
- Product Liability Insurance
- Cyber Liability Insurance.
1. General Liability Insurance
Well, we can say that this is the foundation of many small business insurance plans. This insurance covers the costs that are associated with bodily injury, property damage, personal injury, etc. that are made against your business.
Let’s say, for instance, that a customer slips and falls in your store or a product you sell causes harm. General liability insurance can help protect your business from the cost of lawsuits that might come from it.
2. Professional Liability Insurance
Also known as errors and omissions insurance, this insurance is crucial for businesses that provide or render services. It protects in a case in which your client alleges that your business caused them financial harm.
This type of insurance is particularly important for professionals such as consultants, lawyers, healthcare providers, etc.
For example, if a doctor is sued for making a mistake during surgery, their professional liability insurance may cover the cost of their defense as well as any settlements or judgments.
3. Product Liability Insurance
Do you own a small business that sells products? This type of insurance is essential for you. Product liability insurance covers you in case a product you sell causes harm or injury to a customer. Even if you didn’t manufacture the product yourself, you could still be held liable, which makes this coverage critical.
Let’s say, for instance, that a customer is injured by a defective product you sell. They could file a claim against you.
Product liability insurance would cover the cost of defending against the claim, as well as any settlements or judgments. I hope that is clear.
4. Cyber Liability Insurance
Just like they say, the world is now a global village, and everything is now digitalized. Cyberattacks and data breaches are on the rise.
That is where cyber liability insurance now comes in. It protects your business from the financial crisis of a data breach or cyberattack.
5. Employment Liability Insurance
Employment liability insurance is designed to protect your business from claims that are related to employment practices, such as wrongful termination, discrimination, or harassment.
It’s also designed to protect businesses from claims related to employee injuries or illnesses. It’s required by law in most states and typically covers medical expenses, lost wages, and legal fees.
Let’s say, for instance, that if an employee is injured on the job, employers’ liability insurance may cover their medical bills and lost wages while they’re unable to work.
Now that you have understood the different types of liability insurance for small businesses, let’s quickly look at the factors that affect the cost of liability insurance.
What Does Liability Insurance Cover?
The following are covered by small business liability insurance:
- Bodily injury
- Advertising injury
- Property damage
- Products-completed operations
1. Bodily Injury
In a situation in which an individual gets injured on your business’s property, this coverage will take care of the person’s medical expenses and as well, protect your business from claims made by a third party.
Also, this coverage can apply if the injury is caused by a product manufactured or sold by your business.
2. Advertising Injury
Small business liability insurance protects businesses from claims that are related to their advertising, such as claims of libel, slander, or even copyright infringement.
Let’s break it down a bit, for instance, if your business runs an ad and is later accused of making false claims about your competitor’s product, in such circumstances, your business’s advertising injury coverage would help pay for the costs of defending itself in court.
3. Property Damage
This insurance also protects your business from claims that are related to damage to the property of third parties.
It includes damage to buildings, equipment, or other property that is not owned by the business.
For example, if your employee accidentally causes damage to a customer’s home while performing a service, the business’s property damage coverage would help pay for the repairs.
4. Products-Completed Operations
Liability insurance protects your business from claims that are related to products that they have manufactured or sold. This includes any injuries or damage caused by a product after it has been sold or installed.
Factors that Affect the Cost of Liability Insurance for Small Businesses
1. Type of Business
Just like in other types of insurance, the type of business you operate will certainly affect your liability insurance premiums.
It is common sense that construction companies will tend to have higher premium rates due to the higher risk of injuries and damages compared to office-based businesses.
The location of your business can also affect your rates. For example, businesses located in areas with high crime rates or natural disaster risks may have higher premiums.
3. Size of Business
Generally, the larger your business is, the higher your rates will be. This is because larger businesses have more employees and more assets, which increases the risk of injuries, damages, and other claims.
In addition, larger businesses may have more complex operations and higher legal costs, which also affect rates.
Another major that you have to take into consideration is your claim history. Your business’s claims history is one of the most important factors in determining its liability insurance premiums.
This is because insurers make use of your business’s claims history to predict the possibility of future claims. There is a high possibility of you making future claims if your business already has a history of making claims. This, therefore, leads to higher premiums.
Benefits of Liability Insurance for Small Businesses
1. Peace of Mind
Knowing that you don’t have to disturb or even worry yourself because of a lawsuit or claim allows you to focus on growing your business without the constant worry of potential financial devastation.
2. Financial Protection
One of the main reasons for liability insurance is to safeguard your business’s finances by covering legal defense costs, settlements, and judgments.
You can agree with me that without it, you could be personally responsible for these expenses, putting your financial balance at risk.
3. Enhanced Credibility
Having liability insurance can boost your business’s credibility and reassure clients and partners that you’re prepared for unexpected situations. In a short sentence, liability insurance for small businesses demonstrates professionalism and responsibility.
4. Legal Compliance
In some cases, liability insurance is legally required. Failing to have the necessary coverage can result in fines or the suspension of your business operations.
Cost of Liability Insurance for Small Businesses
Let’s now dive into the cost of liability insurance for small businesses. Although we can’t ascertain the exact cost of small business liability insurance because it varies due to the different factors we have discussed above, the average cost of a general liability insurance policy for a small business is between $500 and $1,500 per year.
FAQs on Liability Insurance For Small Businesses
What does liability insurance cover?
Well, liability insurance covers bodily injury, property damage, and other types of claims that can result from your business operations. Let's take for instance, if a customer is injured on your property or by one of your products, your liability insurance would cover their medical bills and other related costs. However, it's important to note that not all policies are the same, so you should always read the policy carefully to understand exactly what is covered and what is not.
How much liability insurance do I need?
The amount of liability insurance you need will depend on several factors, including the size of your business, the type of business you have, and the amount of risk involved. It's a good idea to speak with an insurance agent to get an accurate estimate of how much coverage you need.
Can I get liability insurance for a sole proprietorship?
Yes, sole proprietorships can and should get liability insurance. While sole proprietorships don't have to carry insurance, it's a good idea to do so, as you can be held personally liable for any claims that are made against your business.
What's the difference between liability insurance and professional liability insurance?
These two types of insurance are similar, but there are some key differences. Liability insurance covers claims related to bodily injury or property damage, while professional liability insurance covers claims related to professional services, such as malpractice or negligence. So, if you're a doctor, lawyer, or other professional, you may need both types of insurance to be fully protected.
How do I choose the right liability insurance policy for my business?
When choosing a liability insurance policy, there are a few things to keep in mind. The first is to consider the risks associated with your business and make sure the policy you choose covers those risks. Secondly, you should consider the limits of the policy and make sure they're high enough to protect your business. Finally, consider the cost of the policy and make sure it fits within your budget.
Liability insurance is not just an expense; it’s an investment you make to safeguard the future of your small business. So we can say that it’s an important part of risk management or risk mitigation in your small business.
By understanding the types of liability insurance available and making good use of your coverage, you can protect your business, reputation, and financial stability.
It’s important that you reach out to an insurance consultant or agent before making any purchase decision. This is because each business is unique, so tailor your coverage to your specific needs. In a world filled with uncertainties, having the right liability insurance can make all the difference.
Finally, liability insurance provides financial protection and peace of mind in a world where unexpected events can threaten the survival of your enterprise.