Small Business Liability Insurance Explained

By Author: Stam Bett
Total Articles: 452
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It goes without saying that small businesses face a lot of uncertainty. One way to protect yourself against this uncertainty is through adequate insurance coverage, particularly something known as general business liability insurance. You've probably already been told a few times that you need small business liability insurance, but what does it really do? What protection does it offer? How does it work and how do you determine how much coverage you need? Let's explain liability insurance in more detail.

What is Small Business Liability Insurance?
Liability insurance goes by many names, and you may have also heard it called commercial business insurance or general business liability insurance. Basically, this policy protects your assets and pays for obligations like medical bills incurred if someone gets hurt on your business property or there are property damages or injuries caused by you or the people you employee. Liability insurance is also important because it covers the cost of a legal defense as well as any settlement if you are sued. While it won't always cover punitive damages, it does cover compensatory ...
... damages and non-monetary losses.

It will even cover again claims against you of false or misleading advertising, and protect you as a tenant if the property you rent is damaged by a covered loss.

Do You Need Liability Insurance?
Keep in mind our society has become very litigious. While you may not think you are a target of a claim, there always remains the possibility that someone will sue you and insurance is an affordable and smart investment, with annual premiums ranging anywhere from $750 to $2,000. Meanwhile, the cost for a legal defense alone can easily cost hundreds of thousands of dollars, even if you win!

Most businesses purchase liability insurance as a part of a Business Owner's Policy (BOP), but it may also be purchased on its own. It's usually a good idea to buy it with a BOP, as this policy includes many other forms of insurance you will likely need.

Determining Coverage Needs
Now, how do you decide how much coverage you will need? This depends on many factors, including the type of business you are in along with its perceived risk. Web designers carry less risk, and thus less coverage, than a general contractor, for example. Your business location is also important, in part because some states usually award higher damages to plaintiffs claiming personal injury. This means this form of business insurance in Miami, FL may cost more than it would in Salt Lake City, UT.

How it Works
Like most forms of insurance, your policy will explain the maximum amount the insurance company will pay against a claim. This means if your coverage maxes at $300,000 but you are sued for $250,000 in medical bills caused by an injury on your property as well as $100,000 in legal fees, you will then be on the hook for the difference, or $50,000. That's why it pays to speak with a licensed insurance broker to determine how much coverage you will need on your small business liability insurance policy.

While you're working hard to keep your business running and profitable, don't forget to overlook the importance of protecting yourself against the unexpected. Business insurance is absolutely essential to avoid a single costly mistake that may cost you your business!

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