Liability insurance for small business owners is as vital a consideration to their venture’s long-term success as is the marketing, quality, and pricing of their product or service. There is simply no way around it – regardless of the type of small business you operate, you will at some point be exposed to liabilities, so you need protection against them. Failure to account for this reality can not only cause you to lose your business, but can lead to the loss of your personal assets as well.
What is Liability Insurance?
The purpose of liability insurance is to shift the financial liability for covered claims from you, the insured business owner, to the insurance company. Any damages or injuries that occur to a third party while on your property, or as a result of using your product or service, are paid for by your provider instead of by you or your business.
While this basic definition applies to all forms of insurance, it is nonetheless worth repeating here because so many small business owners inexplicably view liability insurance as a luxury they can live without. The commonly-held perception that certain types of business structures (LLCs for example) make the proprietor immune to all forms of liabilities, and render liability insurance unnecessary, is patently false. There is no way to completely protect against every type of exposure you will encounter in your day-to-day operations, other than through use of liability insurance.
Types of Liability Insurance for Small Businesses
Just as there is a myriad of different types of small businesses, so too is there a myriad of different types of liability insurance to cover their needs. With that said, when insurance providers tailor a policy to fit your small business’ specific requirements, they generally use some combination of the following five different types of coverage.
General Liability Insurance
The most-comprehensive of liability insurance policies available to small business owners, general liability insurance, or GLI, as it is also called, covers your business against claims of bodily injury, physical injury, and property damage that affect your customers, employees, vendors, and visitors on your business premises, or anywhere else where you conduct business (provided it is covered by the policy). Although it is the most-expensive type of coverage available, it generally includes most of the other types of policies, and therefore makes the purchase of additional protection (other than umbrella policies) unnecessary.
Public Liability Insurance
Considered by most insurers to be the essential liability insurance for small business, public liability insurance covers you and your business against public claims for personal injury and property damage and loss that occurs on your premises. This means that you are protected in the event you are sued by someone who slips and falls on your floor, has their car or other property damaged at your place of business, or who is otherwise injured by some form of accident on your premises. It only covers public claims (e.g., third parties, including customers) however. Your employees, vendors, and shareholders are not included in the coverage.
Professional Liability Insurance
Commonly referred to as errors and omissions insurance, professional liability insurance covers claims of financial damage against you or your business. This form of liability insurance for small business owners is crucial if you provide a service that leaves you exposed to claims of failure to perform, inaccurate advice, negligence, and misrepresentation. Although these claims are usually filed against professionals like lawyers and physicians, there are other small businesses to which it is also applicable.
Product Liability Insurance
Product liability insurance is a form of coverage that protects small businesses from claims of damage or injury caused by products you manufacture or supply. While this form of coverage is often packaged with other forms of liability insurance for small business, it may need to be purchased separately in some cases.
Employers Liability Insurance
For any small business that has employees (and most of them do), employers liability insurance is an absolute must. This type of policy protects you and your business against claims of injury or illness by employees.
How Much Does Liability Insurance for Small Business Cost?
As is the case with any type of insurance, liability insurance for small business policies vary greatly according to the amount of coverage provided, your type of business, and the types of claims covered. As mentioned, general liability insurance, is a “catch-all” type of coverage for small business, but due to its higher cost, you may opt for a customized policy that focuses only on specific types of coverage. Whatever you decide, the important thing is to be sure that your liability insurance for small business policy leaves you adequately protected.