If you're an entrepreneur with your own business, you may be wondering about insurance. It can be hard to understand all the different types and figure out what you need, which is why we've put together this guide to try to help.
Why Do I Need Small Business Liability Insurance?
In a nutshell, liability insurance of different types serves as a type of protection for your business so that rather than focusing on what could happen, you can focus on helping your business grow and thrive.
There are many different types of insurance policies for small businesses, but we would suggest that general liability insurance, which we will discuss further, is the most important. General liability insurance refers to a policy for if someone is injured or has their property damaged in a way that's related to your business. Although liability insurance isn’t legally required
in some places, it’s a sensible choice for every small business. There are some other types of small business insurance that also make sense, so let's look into them, together.
What Types of Liability Insurance Exist for Small Businesses?
The term ‘liability insurance’ can refer to a lot of different types of liability insurance policies, and their names and meanings aren't always easy to understand.
You don’t necessarily need
to buy every type of small business insurance, but there are several to consider seriously. Here’s an overview of the different types of liability coverage:
General and Public Liability Insurance
General liability and public liability are often referred to as are the same thing, but they are two different forms of liability insurance
Public liability insurance
(PLI) pays out if someone breaks their wrist tripping over the loose carpet in your office or if you accidentally break a lawn ornament when cutting the grass.
General liability insurance
(GLI) is a package that includes public liability insurance and product liability insurance. It’s a great way to get the most important types of business insurance policies. If you can only afford one type of business insurance, this is the one to get. For most business owners, GLI is the ideal type of insurance because it covers you for types of situations resembling:
- Fixing damage done to property belonging to someone who is not you or your employee during your work
- Medical costs for injuries to a third party on your premises or through your work
- If a third-party sues you for sharing before and after photos of a site you worked on or a client you helped
- Damage caused by a product that you make or sell
Your policy may vary so while this is a general guideline, it's important to check your specific policy for your coverage details.
Commercial liability insurance can be another way of referring to general liability insurance. Sometimes, though, it means these three types of insurance coverage for businesses:
- Property insurance, which covers damage to your office premises or equipment
- Workers’ compensation, which pays for your employees’ medical costs if they are injured at work
- Public liability insurance
If you are an electrician, workers' compensation insurance would pay for medical costs if your employee fell off the ladder at work and sprained his ankle. Commercial property insurance would pay to fix your office's hardwood floor that was damaged by the ladder when the employee came back in, and the price of a new ladder because the old one broke when it fell.
Professional liability insurance
becomes relevant if your client isn’t happy with the job you’ve done or says that you gave them bad advice.
For example, if you recommend a certain type of floor tiles which turn out to be dangerously slippery, your client could sue you. If you encourage a personal training client to keep pushing on, and they end up tearing their hamstring, that could result in a professional liability claim. Professional liability insurance will generally pay your legal costs and damages to your client.
Employer liability insurance is an important part of workers' compensation insurance. Workers’ compensation pays for your worker’s medical costs and lost wages if they are hurt while at work. But if your employee feels that their worker’s compensation isn’t enough, they could sue you for more damages which wouldn’t be covered by some basic workers’ comp policies.
For example, if you’re a personal trainer and your assistant drops a heavy dumbbell on his foot, workers’ compensation would pay the cost of treating his broken toe and his lost wages while he recovers. But if he also sues you because the dumbbell storage system isn't good enough, those costs will likely be covered if you have employer liability insurance.
The Importance of Liability Insurance
Many clients want to see that you have liability insurance before they agree to hire you. Liability insurance is not just a way to protect yourself, it also builds trust and helps you to get more work. You can show customers that you are a true professional with insurance behind you, in some cases gaining an edge over your competition.
If we haven’t already convinced you that liability insurance is important, take a moment to think about why your business matters to you. Remember that liability insurance is one more way you have to protect yourself, your family and the business you've worked hard to build. You invested in your business with your time, your energy and your skills. Liability insurance recognizes that investment and works to help you thrive, confident in what you can do.