Not having general liability insurance coverage could put your business at serious financial risk.
Without liability insurance, it’s well-nigh impossible to protect your business from claims holding it responsible in the event of claims such as property damage, bodily image and even libel or slander. Not only does general liability cover certain business losses (should there be any), but it can also cover the people who interact with you on a daily basis: your employees.
Obviously, many other different types of risks are inevitable when running your own enterprise. This is why a comprehensive suite of insurance types for a small business is imperative, in addition to general liability coverage.
Below we’ll review a few different types of business insurance you should be aware of, then delve into broader detail about general liability insurance.
Types of insurance for small businesses
General liability insurance – General, all-purpose liability insurance relates to absolving your business or workplace from claims filed by anyone against your company in the event of a mishap or untoward incident. It’s the first and the most basic of protections.
Professional liability insurance – Also known as errors and omissions insurance. Professional liability insurance helps cover you and your company if you make a mistake in the professional services given to a customer or client.
Property insurance – Property insurance protects your property (must be physical in nature) from damage arising due to an act of God, protests, riots, vandalism etc.
Workers’ compensation insurance – With workers’ compensation insurance, employees are provided a metaphorical security blanket. Work-related accidents and claims by employees in this regard are taken care of by workers’ comp insurance. Anything that takes place while on duty is automatically covered under this insurance.
There are many other types of insurance in the small business arena too, such as cyber liability insurance, product liability insurance, unemployment insurance, disability insurance, business interruption insurance, business owners policy (BOP) insurance, commercial auto insurance and liquor liability insurance.
It’s up to individual business owners to decide which particular insurance coverage types they need as a layer of protection. But the lingering question for most business owners is how much — and to what extent — are they liable for?
A primer on general liability insurance
As previously noted, general liability insurance shields your business from a customer or client’s potential claims of physical injury and/or damage of property. Claims of this nature may be precipitated by the goods, services or business activities your firm provides.
Without general liability insurance coverage, you risk having to pay claims out of pocket. For example, you may have to pay out-of-pocket for your employee’s medical care if they suffer a work-related injury.
Other scenarios could be a lawsuit based on allegations of reputational harm or copyright infringement; or your employee is accused of damaging the goods, or a client suffers an injury in your office. Hence, you must make sure you are adequately protected from as many adverse circumstances as possible.
Which elements influence the cost of general liability insurance?
Insurance providers evaluate the level of risk they are taking on before providing coverage for your business. They will require information about all your business’s activities and any potential weak points to determine how much you’ll pay for general liability insurance.
You may require more coverage as your level of risk increases. And as your business develops and changes, so too will your general liability insurance requirements. Keep an eye on your business’s operations to identify any areas that could expose you to additional liability.
Although you can’t foresee every turn, you can estimate how much general liability insurance you need. Knowing the variables that affect your coverage level is key.
Consider these important questions to help determine the amount of general liability insurance coverage you need:
- What type of business do you run?
- What is its size?
- What’s the location of your business?
- Do you operate as a sole proprietor?
- How many people work for you?
- Who are your clients?
- How experienced are your employees?
How do you buy the right amount of general liability insurance?
In determining your level of liability and coverage needed in a general liability insurance policy, review the steps below — and think seriously about getting help from an insurance professional experienced with the nuances of small business insurance needs.
A plethora of factors determine the coverage, such as the size and value of the company, the parent industry, potential risks in the business you are in, etc.
Risk exposure. The first step is to identify the exposure to risk your people or employees may face when undertaking a task. Assess potential damage to property or injury or illness to evaluate your company’s level of risk exposure.
Value of assets. Assets of the company, both physical and intangible, form will need to be accounted for. The liability should be such that both physical and nonphysical assets are protected by the general liability insurance.
Average lawsuit. Lawsuits and their costs in your state should be accounted for in your assessment of liability insurance coverage. Lawsuits are becoming increasingly expensive; this should also serve as a point in the discussion of how much it would cost if the liability insurance doesn’t do its job or is insufficient.
Contracts. Some contracts your business wants to pursue may warrant higher coverage, while some may warrant less. The amount of coverage may also depend on the size of your business partner, or clients may dictate how much coverage they want you to have, based on the scope of work.
Insurance professional. Potentially the most important element in the decision. Consult an experienced insurance professional for a trustworthy quote. There’s a chance you could neglect pertinent data or aspects that an insurance professional will catch and address.
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This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.