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June 19, 2023
Tasnim Ahmed is a content writer at Escalon Business Services who enjoys writing on a multitude of subjects that include finops, peopleops, risk management, entrepreneurship, VC and startup culture. Based in Delhi NCR, she previously contributed to ANI, Qatar Tribune, Marhaba, Havas Worldwide, and curated content for top-notch brands in the PR sphere. On weekends, she loves to explore the city on a motorcycle and binge watch new OTT releases with a plateful of piping hot dumplings!
Considering the numerous disasters that might severely impact a business’s bottom line, it’s essential to purchase business liability insurance that will protect the business’s financial interests from official lawsuits or third-party claims.
But buying liability insurance can be a confusing endeavor as you navigate through various choices. You may be offered multiple insurance plans, including general liability and professional liability insurance. Should you buy one or both insurance coverages?
The answer depends on the type of business you run and its specific insurance needs. However, you may find that most businesses need general liability insurance while only some need professional liability coverage. The two liability coverages are distinct and serve different purposes, and neither is a substitute for the other.
General liability insurance protects your business from common lawsuits and takes effect when a third party sues your business for:
General liability insurance covers legal fees incurred as a result of third-party lawsuits. Attorney’s fees, court costs, and settlements or judgments could all be included. These claims can be made by any small business owner, regardless of their business size, sector or industry.
Professional liability insurance is also termed as errors and omissions insurance (E&O) which covers the costs of professional malpractice claims, such as court judgments and settlements, legal fees and other sorts of payments, such as licensing board penalties.
Without the proper professional liability insurance, errors and business disagreements can be expensive. For example, if an accountant files an incorrect tax return for a client, there will be a penalty cost imposed for negligence arising from professional mistakes.
Critical for service providers, this policy is equally important for small business owners as it protects against third-party lawsuits claiming –
– Incorrect advice
– Negligent professional services
– Misrepresentation
– Substandard work
– Breach of contract
The key difference between general liability and professional liability is the types of risks and damages they cover, below is a comprehensive look.
In some instances, a general liability policy may cover product liability insurance for contractors, retailers, manufacturers and other business owners. It protects the insured from lawsuits arising from completed work that causes bodily harm to another person. Although this appears to be an area of professional liability, physical damage is the deciding factor. Professional liability insurance covers disputes involving financial losses caused by a third party’s products or services.
When deciding between general liability and professional liability insurance, it is crucial to consider the unique risks and needs of your business. That being said, almost every business will need general liability insurance. However, if you are a professional advice-giving or service-providing business, you probably need professional liability insurance as well.
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.
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