Owning and operating a small business comes with plenty of responsibility and accountability. Even if you operate with the utmost care and provide the best quality and services, the unforeseen can occur - an accident, an injury, a mistake, a misunderstanding that escalates. Is your business protected with liability insurance? If not, your business and personal assets may be in peril.
Who Needs Business Liability Insurance?
It's likely that you do, as we live in a litigious society. Annual premiums range from $750 to $2,000 depending on your line of business and coverage needs. That’s certainly a lot less than the thousands, if not millions, of dollars you may need to spend fighting your case in court.
General liability insurance can be purchased on its own, but it can also be included as part of a Business Owner’s Policy (BOP) which bundles liability and property insurance into one policy. If you have a BOP, check it to see what your liability coverage limit is. You may find that it is quite low, in which case you may need additional coverage through a separate policy.
Does an LLC Need General Liability Insurance?
You, as a business owner, can be held responsible ("liable") for things you do while performing work for your limited liability company. For example, your LLC will most likely not protect you if:
- You personally injure someone
- You personally guarantee a business loan or debt
- You don’t manage your business taxes correctly
- You have acted in an irresponsible or illegal manner
- Rather than treating your company as a separate business entity, you mix business and personal accounts or expenses
The Types of Business Liability Insurance
There are several types of business liability insurance. Learn more about the following:
General Liability Insurance
This form of business liability insurance is the main coverage to protect your business from injury claims, property damages, and advertising claims. General liability insurance is also known as Commercial General Liability (CGL) may be the only type of business liability insurance you need depending on your business situation.
As with many insurance plans, your policy will outline the maximum amount the insurance company will pay against a liability claim. So, if your small business gets sued for $250,000 for medical costs associated with an injury caused by a worksite hazard, plus an additional $100,000 in legal fees, but your coverage maxes out at $300,000, then you are responsible for paying the difference of $50,000. Make sure you calculate your exposure and select the coverage that will protect you.
Professional Liability Insurance
Business owners providing services will need to consider having professional liability insurance known as "errors and omissions." This coverage protects your business against malpractice, errors, negligence, and omissions. Depending on your profession, or an individual contract, it may be a legal requirement to carry such a policy. Doctors require coverage to practice in certain states. Technology consultants often need coverage in independent contractor work arrangements.
Product Liability Insurance
Small businesses selling or manufacturing products should be protected in the event of a person becoming injured as a result of using the product. The amount of coverage and the level of risk depends on your business type. A retailer of scrapbook supplies will have far fewer risks than a wood stove builder.