When we think about insurance, a lot of us are actually thinking about things that happen to us.
Take health insurance, for example. You slip on a banana peel, you break your leg, you go to a doctor who will put you in a cast and tell you to take it easy.
If you have insurance, you can rest a little easier knowing that you probably won’t be paying for the entire experience out-of-pocket. Health insurance, homeowners insurance, auto insurance and more all essentially work to reduce what you will have to pay.
On the other hand, business liability insurance isn’t for what happens to you, it’s for what happens to someone else because of you. It protects against the losses, damage or injuries that your business may have or may be accused of causing.
As a business owner working with clients, vendors, the odd health inspector and more, mistakes and accidents can happen. So if someone else slips on a banana peel in your place of business, having liability insurance takes off the pressure of footing a large bill yourself.
How liability insurance works
Liability insurance provides business owners protection against claims or lawsuits resulting from injuries and damage to other people.
Let’s make this easy. Say you’re a contractor installing cabinets in a client’s house and you accidentally knock over an antique vase, shattering it into a million little pieces.
To prevent your financial life from shattering the same way, you have liability insurance to help cover the cost of said vase. Easy.
Now, what if you walk into the house and notice a shattered vase on the floor? Do you walk over it, pretend not to see it, or frantically sweep it under a rug? NO. You tell the owner.
Now, after you leave, this could get sticky. What if the client claims you broke it and takes you to court for damages?
In this case, you’ll still have protection because liability insurance also helps cover the cost of defending you against that claim.
In either case, without this insurance, you’d have to cover the cost of vase or legal expenses out of your own pocket.
The key thing to understand is that liability insurance helps protect you from financial losses or lawsuits when someone accuses you of being at fault, whether you are or not.
Who needs liability insurance?
There are certain professions and industries that require liability insurance to run a legal business – general contractors, plumbers and day care workers are just a few examples. But even if it’s not required, liability insurance can help a business owner secure jobs or contracts because it makes them more accountable and responsible, giving clients peace of mind.
Beyond these reasons, liability insurance is critical for anyone who owns a business and wants to remain financially un-ruined because it protects you from unintended accidents and unjustified accusations.
Accidents will happen even to the most cautious person. Without liability insurance, you and your business will be left holding the bag for 100% of the cost to fix those accidents.
Types of liability insurance coverage
Now, let’s break down the types of liability insurance. There are four common kinds of liability insurance coverage. You might need any combination of them depending on your business operations.
General Liability insurance
Also known as commercial general liability, this insurance covers the most common risks that affect almost every kind of business. Because of this, it is the most common insurance purchased for small businesses and self-employed professionals.
General liability covers you in cases of property damage, bodily injury and medical payments to third parties. So, if you put your toolbox down on the sidewalk while loading your van and someone trips over it and breaks their leg, general liability ensures you don’t have to pay out-of-pocket for their medical expenses.
General liability also protects you if you are accused of causing non-physical harm like advertising harm, libel, slander or defamation. For example, if you remodel someone’s bathroom and use a photo of the remodel on your website without the client’s permission, they could sue you for advertising harm.
Or, say you posted a series of hilarious tweets poking fun at your competition. If they don’t get the joke and say you cost them some business, they could sue you for libel.
In either case, there’s no physical harm done, but it could cost you some serious coin to defend yourself without general liability insurance.
Professional Liability insurance
Professional liability insurance isn’t for accidents. It’s for when you’re accused of making professional mistakes, like doing your job poorly, whether you did it poorly or not.
Say you own a bike repair shop, and a week after fixing someone's ride, their front tire pops off, and they break an arm and sue you. This isn’t an on-the-job incident — it’s an accusation against your workmanship.
General liability won’t cover it, but professional liability will. This insurance covers a range of mistakes and business disagreements, from business errors, to missed deadlines, to accusations of negligence and more.
Commercial Auto insurance
Commercial auto insurance is just what it sounds like — liability insurance for you and your employees when anyone is driving for work.
Most states require commercial auto insurance by law if you have a business-owned vehicle. So if you should happen to clip someone’s mailbox while on the job, this insurance has you covered.
Even if you work by yourself and only have one car for all your transportation needs, you’re exposed to different risks when you drive for business than when you drive for personal reasons.
Double-check your policy — most personal auto insurance won’t cover accidents while on the job.
Product Liability insurance
Product liability insurance helps protect small business owners from financial liabilities and resulting from defective products.
Maybe you sell plant seeds or pet outfits and think, “there’s no way my products could cause any harm,” but unfortunately anyone can find themselves wrapped up in a product liability lawsuit.
Typically, this insurance covers bodily injury and property damage due to product defects. It also covers legal fees such as court fees and legal defense costs associated with those damages
Employment Practices Liability insurance
Employment practices liability insurance (EPLI) is beneficial for any business with employees.
Unlike general and professional liability insurances, which protect you from the accusations of outside parties, EPLI protects you when you are sued by an employee, ex-employee or contractor.
EPLI can help defend you against lawsuits over discrimination, sexual harassment, wrongful termination, violations of the Family and Medical Leave Act and more.
What’s NOT covered by liability insurance
While liability insurance covers you from a wide range of potentially costly and damaging situations, it doesn’t cover everything.
Remember, commercial liability insurance helps in case you cause harm.
This means general liability doesn’t cover your employees. If you have employees, most states require you to have workers’ compensation insurance, which will cover them after any work-related accidents.
Another wrinkle — your property, tools and equipment are not covered by liability insurance. So if a pipe bursts and floods your workspace, liability insurance won’t cover costs when your business property is underwater.
If you want to keep your property protected, it’s worth considering adding commercial property coverage to your business insurance plan.
Finally, liability insurance doesn’t cover intentional misconduct. Accidents happen, but if that accident isn’t an accident, well…
For example, if your employee scratches a car’s paint while on the job, liability insurance has your back. However, if your employee intentionally keys a car while on the job, there’s nothing liability insurance can do.
How much does liability insurance cost?
Like all types of insurance, the cost of business liability insurance depends on the business’ needs.
The biggest factors that affect the cost of insurance are the industry you're in, the size of your business and how much coverage you want.
Of course, some industries have higher risk factors than others.
The more common accidents and injuries are in your business, the more you will pay for insurance in most cases. Likewise, the more people you employ and want to have their actions and workmanship covered, the higher your cost will be.
Lastly, your business insurance costs depend on how much coverage you want, or what is known as an aggregate limit.
This is the maximum amount of money you could claim from your liability insurance policy. The higher your total coverage limit, the higher your business liability insurance costs.
How NEXT can help you get the business insurance you need
With business insurance from NEXT, you’ll have the confidence to take risks and get your small business to the next level.
Our process is 100% online so you can get the liability insurance coverage you need in one quick, simple visit.
Start an instant quote today.