To protect a small business from potential lawsuits, liability insurance is necessary. Policies vary greatly, and they cover different classifications of risks for varying costs. Before shopping for a policy, it is important to educate yourself about liability insurance.
Liability Insurance is Available in Many Different Forms
Commercial general liability, which is also called CGL, is a very broad insurance product. It covers claims from accidents, injuries or negligence when the business is at fault. Small businesses may face a wide array of damage charges. Personal injuries, property damage, libel and slander are just a few examples.
Product liability insurance covers legal fees for litigation involving a faulty product. It also covers any personal or property damage charges caused by the defective product.
Professional liability coverage pays for damages caused by services. It is also called errors and omissions coverage. This is for companies that market a service instead of a product. For example, professionals in medical clinics must have medical malpractice coverage.
There are other types of insurance designed for specialty businesses. For example, there are special policies for companies involved only in Internet sales. The nature of the business determines what type of coverage is necessary.
Type of Business May Influence Premium Amounts
Insurers classify businesses in several different categories. These classifications play a key role in determining annual premiums. Every business has a certain degree of risk, and some types face many more risks than others.
For example, a company that washes windows on skyscrapers would be considered a riskier business than a tax preparation company. To get a better idea of what to charge, most insurers research the number of claims made by similar businesses. The North American Industry Classification System is commonly used.
The size of a business' payroll and the amount of sales made also contribute to premium amounts.
To find out what kind of risk classification a particular business falls under, discuss the matter with us.
Liability Insurance Doesn't Cover Everything
General liability coverage does not offer benefits for employees' work-related injuries and illnesses. Workers' compensation coverage usually provides benefits for such expenses.
Liability coverage does not cover intentional acts or damages sustained from those acts. Employee fights, criminal activity and fraudulent behavior are some examples of intentional acts.
Liability Insurance May be a Requirement
Several states require some professions to carry liability coverage. If a business uses a vehicle or lets employees drive it, auto liability coverage is also important.
Although most states have a specific standard for minimum auto liability coverage, the amounts vary from state to state. It's important to discuss these requirements with us to be sure your business is adequately covered for the state(s) you operate in.
In the event of a claim, liability insurance provides coverage for defense costs, litigation claims and other legal fees.
It's Possible to Decrease Risks
If business owners document certain safety measures taken to reduce or eliminate risks, insurance companies may classify the company as low(er) risk. Smoke alarms, fire alarms, sprinkler systems and multiple fire extinguishers help lower risks.
It is also beneficial to train employees in various safety practices. Be sure to make equipment readily available.
When vehicles are used for business purposes, make sure they are maintained properly.
Discussion
Kenneth Gladman
Friday, February 23, 2018 at 5:17pm CST
I didn’t realize that insurance for commercial buildings could be required by law. It is good to know if it is mandatory in your state. You can avoid a lot of trouble by researching.
Eve Mitchell
Tuesday, March 29, 2022 at 4:22pm CDT
It’s good to know that several states require general liability insurance for businesses. I’m just trying to get my start-up off the ground because I want to eventually run it full time. I’m thinking about investing in liability insurance in a few months just to make sure everything is covered.
Thomson Smith
Thursday, April 28, 2022 at 12:43am CDT
It’s valuable that you mention that general liability insurance can help protect your business from lawsuits. My wife and I want to start a business this year, so we’re thinking about buying general liability insurance for it. I’m going to search for a reputable business in the area that can help us get some general liability insurance.
Eli Richardson
Monday, May 30, 2022 at 4:04pm CDT
It’s great that you talked about liability insurance and how it’s important to know what it includes. My wife wants to start a business with a friend of hers, so they’re interested in knowing what type of insurance they’d need, and I think your article could help them figure it out. I appreciate your tips on business insurance and getting the policies you need.
Taylor Abrams
Wednesday, September 7, 2022 at 5:49am CDT
It’s really fascinating to know that safety measures that are documented by business owners to eliminate risks may classify the company as lower risk. The company I work at is considering a small business insurance to safeguard our little team and office from possible risks and liabilities. Things like this never concerned me until I worked for a small business with people who cares so much about their work.
Lily Bridgers
Thursday, March 23, 2023 at 9:34am CDT
I appreciated that you mentioned that a company’s payroll and sales volume might have an impact on the premium costs of a business insurance policy. When wanting to safeguard their firm from potential harm, business owners must take this into account. I could see how a commercial insurance broker could assist a business owner in locating coverage that satisfies the organization’s financial needs.
James Varhall [V.P. Personal Lines at Blue Valley Insurance]
Friday, October 13, 2023 at 9:29am CDT
It’s critical to try and keep pace with the bsuienss as well to mitigate large swings brought on my audits. Policy holders are not well served when surprised by a huge premium bill.
James Varhall [V.P. Personal Lines at Blue Valley Insurance]
Wednesday, September 7, 2022 at 8:20am CDT
Carriers want to be be aligned with active business owners that can be partners when it comes to risk management. Thank you for you r comment!
James Varhall [V.P. Personal Lines at Blue Valley Insurance]
Tuesday, May 31, 2022 at 8:46am CDT
Thank you for reading our blog! Best of luck to your wife and her friend as they start their new venture.
James Varhall [V.P. Personal Lines at Blue Valley Insurance]
Thursday, April 28, 2022 at 8:59am CDT
That initial consultation is key. A good advisor will be able to point out risks common (and some not so common) that your business may face. You two will be able to develop a program best suited to protect what you will surely spend so much effort building and maintaining. Tip: Be sure to ask about Cyber Liability and EPLI (if you have employees.)
James Varhall [V.P. Personal Lines at Blue Valley Insurance]
Tuesday, March 29, 2022 at 4:27pm CDT
Best of luck with your new venture! Be sure to get a licensed insurance professional involved in your risk management program. You don’t want all that blood sweat and tears to be exerted in vain.
Derek Dewitt
Thursday, April 19, 2018 at 9:15am CDT
I know I always check to see that contractors on my property are insured, so I can see why a small business would need to do the same. I like your point about how fire alarms and other systems can help you lower risks. I think businesses with these safety features can probably qualify for discounts, so it pays to have safety measures in place.
James Varhall [V.P. Personal Lines at Blue Valley Insurance]
Thursday, April 19, 2018 at 9:42am CDT
I think we, as consumers will, sometimes assume a small business has their insurance in order. Their truck looks nice, or their price even nicer, but this can be a dangerous assumption. This may be the reason people avoid me at parties. My industry has jaded me into deriving the worst case scenario in all situations.
James Varhall [V.P. Personal Lines at Blue Valley Insurance]
Thursday, April 19, 2018 at 9:43am CDT
It’s the questions you DON’T ask that get you in trouble.
Malia Davis
Wednesday, September 12, 2018 at 2:23pm CDT
Thanks for giving a quick definition of what product liability insurance is. It’s nice that with this type of insurance, you wouldn’t be liable as a company for a faulty product. I could see how that would be very useful for online companies since they have to send their products out and need to make sure they stay in top condition until they reach the customer.
Sharon W.
Wednesday, September 12, 2018 at 9:13pm CDT
I like that you talked about how you may need an auto liability coverage for your business insurance if you will have vehicles that your employees will drive. My husband and I are dreaming of owning a food delivery business. We want to protect both our business and employees, so it’s important for us to be aware of what type of business insurance coverage our business should have. Thanks for sharing this.
Taylor Bishop
Tuesday, March 12, 2019 at 12:45pm CDT
Thanks for going over types of liability insurance. You mentioned that medical clinics could have medical malpractice coverage. I’m kind of interested to learn if the type of coverage medical clinics could have could also depend on what conditions are treated there.
Lloyd Bronson
Tuesday, September 3, 2019 at 10:04am CDT
I am glad to see that your article mentions that liability insurance does not offer workplace injury-related benefits, as workers’ compensation will usually take care of those. My uncle is looking into hiring the services of an insurance company to assist him in the future when he starts his restaurant, but he is unsure of how to go about ensuring that his workers are safe. I will do additional research to assist him in the matter in order to find him the insurance company that will work best with what he needs.
Taylor Hansen
Friday, May 22, 2020 at 10:41am CDT
I never knew that liability insurance is required for each state. My brother is trying to start up a cookie delivery business and is wondering what kind of liability insurance to get. I’ll be sure to share this with him so he can check our state’s requirements for insurance.
James Varhall [V.P. Personal Lines at Blue Valley Insurance]
Friday, May 22, 2020 at 11:54am CDT
We’d be glad to discuss with your brother. Our commercial department is a great resource! Contact tj [at] bvia [dot] com.
Shammy Peterson
Friday, June 11, 2021 at 2:02am CDT
You got my attention when you said that a product liability insurance policy covers personal or property damage charges caused by the defective product. My supervisor at work mentioned that he was tasked to find the best insurance company. I will share your tips with him because he mentioned that he needed to find a policy that could protect the business from any financial crisis should the equipment and tools in the office got damaged due to different circumstances.
Eve Mitchell
Monday, September 13, 2021 at 4:41pm CDT
It’s good to know that general liability insurance can help eliminate some of the risks in business. My brother works at a small start-up and he is thinking about getting liability insurance. I think that would be a great idea to safeguard what he’s built.
Shammy P
Thursday, October 21, 2021 at 8:43pm CDT
It sure was interesting to know that the business insurance policy premium could depend on the number of sales made and the size of a business’s payroll. This is something that business owners could consider in order to properly get quotes from insurance companies. I could imagine how your tips could help a company find coverage with a premium that would meet their budget.
Sarah Jones
Monday, October 25, 2021 at 4:48pm CDT
I appreciate how you explained that liability insurance is available in many different forms. After reading this article I’ve realized how important insurance is for a small business.
James Wallace
Tuesday, November 2, 2021 at 7:46am CDT
When buying small business liability insurance, the owner must know the kinds that are available out there. Here are two examples. There’s the general liability insurance. This is the kind of business liability insurance that mainly covers and protects the business from advertising claims, property damages, and injury claims.
Shammy P
Tuesday, November 23, 2021 at 3:39pm CST
I found it helpful when you said that the premium amounts of a business insurance policy could be affected by payroll and the number of sales made by a company. This is something that company owners must consider when they want their business to be protected from potential damages. I could imagine how a commercial insurance broker could help a business owner find a policy that would meet the financial requirements of a company.
Eve Mitchell
Friday, December 3, 2021 at 4:08pm CST
Thanks for the reminder that general liability insurance doesn’t offer benefits for work-related accidents. I’m trying to decide the best policy to get for my business since it’s grown a lot lately. I think that something that’s beneficial to me and also to my employees would be the best.