Liability insurance protects your business from potential lawsuits. Insurance policies vary widely, covering different types of risk at varying cost to the business. Before you start shopping for policies, here is a guide on what you need to know about liability insurance:
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Liability insurance comes in all shapes and sizes
Commercial general liability (CGL) insurance is a broad-spectrum policy that covers injury, accidents and claims of negligence related to the business. Businesses can be liable for a wide range of damages, including personal injury, slander and libel and misleading advertising, all of which may fall under certain general liability policies. Product liability insurance covers you for potential legal fees incurred due to defective products that have caused physical harm. Professional liability insurance, also known as errors and omissions insurance, is directed toward possible damages caused by services related to your business. Some state require certain professions to carry errors and omissions insurance, reports the Small Business Administration. For example, many states require doctors to purchase malpractice insurance.
Additional types of insurance can specialize in risks involved with Internet businesses, employment practices, pollution or environmental liability. Which type of insurance you need depends on the nature of your business. For example, candy stores will require less coverage than a construction site.
Liability insurance may be required
As already mentioned, some states require particular professions to maintain liability insurance. If you or your employees use a vehicle to conduct business, you will also most likely need auto liability insurance. While most states mandate some minimum auto liability insurance, the required coverage amount varies from state to state. Whether or not you are legally required to carry it, some form of liability insurance is recommended. Tracey Eberling, an attorney with Steptoe & Johnson PLLC, says that liability insurance is absolutely important. “Liability insurance will provide not only coverage in the event of a claim,” says Eberling, ”but will likely include the payment of defense costs, i.e. attorneys fees and expenses associated with the defense of a claim in litigation.”
Business classification can affect your premiums
Insurers have classifications for each type of business, and the classification in part determines how much your insurance coverage will cost, according to the National Association of Insurance Commissioners. Each business will incur its own degree of risk, and insurance companies factor in these risks when calculating your premium. Companies may look at the number of files claimed by similar companies to gauge your industry risk. Make sure your company is accurately classified to prevent unnecessary expense. To help you determine your business classification, check out the North American Industry Classification System, which is used by the U.S. Census Bureau. Note a wide range of factors, including the amount of sales you make and the size of your payroll, can also affect your premiums.
Liability insurance doesn’t cover everything
Work-related injuries or illnesses that affect employees are covered under workers’ compensation insurance–not general liability insurance. Liability insurance also does not cover intentional acts, and any other injuries caused by actions that are not accidents. These intentional acts can include criminal or fraudulent behavior, property damage or bodily on the part of your business or employees.
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You can decrease your risk
Documented safety measures may lower your premium by establishing you as a lower-risk business. Install fire and smoke alarms and keep fire extinguishers readily accessible. Train employees in essential safety practices and provide them with recommended safety equipment, such as gloves or goggles. If your business uses a vehicle, make sure to maintain the vehicle’s condition. These safety practices may save you money and keep your business environment safe for everyone.