In a nutshell, liability insurance serves as a type of protection for your small business so that rather than focusing on what could happen, you can focus on helping your business grow and thrive. In the United States, small businesses are faced with so many risks that liability insurance helps protect against. So to meet different business’ insurance needs, insurers typically offer a range of liability insurance policies.
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 helps you build trust and also helps you to get more work. With this insurance, you can show customers that you are a true professional, in some cases gaining an edge over your competition.
According to experts, operating your small business without liability insurance can be very risky, depending on the assets your business owns. Sole proprietors are always prone to these risks, because their personal assets, including their home and car, can be taken in a business – related lawsuit. Incorporated businesses may face lesser risks, but lawsuits shouldn’t be taken lightly, and their business assets are still vulnerable.
So many entrepreneurs, especially small business owners, have probably heard about a general liability policy—but this is not the only type of liability insurance coverage. There is indeed a huge list of different types of liability insurance.
The industry a business operates tends to usually determine the kind of insurance it needs. The perceived risks your business faces in your day to day operations may also drive the need for other types of liability insurance or the additional coverage of an umbrella policy.
Most times, liability insurance is bundled together with other types of insurance in a Business Owner’s Policy. 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:
10 Types of Liability Insurance for Small Businesses and The Type of Businesses They Cover
Table of Content
- 1. General Liability Insurance Policy
- 2. Employer Liability
- 3. Professional Liability
- 4. Directors and Officers Liability Insurance
- 5. Liquor Liability Insurance
- 6. Cyber Liability Insurance
- 7. Product Liability Insurance
- 8. Commercial Auto Insurance
- 9. Business owner’s policy (BOP)
- 10. Commercial Liability
In the United States, almost every business should have a general liability policy. This policy is designed to protect against risks that most businesses are exposed to. Some of the items that a general liability policy will usually cover include the following:
- Injuries sustained by third parties on company property
- Libel and slander claims
- False advertising claims
Also note that most general liability policies will cover these claims regardless of whether they are filed by an individual or multiple people as a class – action suit. The policy provides both defence and damages if you, your employees or your products or services cause or are alleged to have caused Bodily Injury or Property Damage to a third party.
2. Employer Liability
Employer liability insurance is a crucial part of workers’ compensation insurance. Workers’ compensation pays for your worker’s medical costs and lost wages if they are hurt while at work. However, if your employee feels that their worker’s compensation isn’t adequate, they could sue you for more damages which wouldn’t be covered by some basic workers’ comp policies.
For instance, if you’re a personal trainer and your assistant drops a heavy dumbbell on his foot, workers’ compensation is expected to 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.
Professional liability insurance becomes very necessary if your client is not happy with the job you have done or says that you gave them bad advice. For instance, 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 is known to pay your legal costs and damages to your client. Professional liability insurance is applicable for any professional firm including lawyers, accountants, consultants, notaries, real estate agents, insurance agents, hair salons and technology providers to name a few.
4. Directors and Officers Liability Insurance
In the United States, Directors and officers are sometimes held to higher standards than other employees, and they may be sued or fined if they make an error. Directors and officers liability insurance covers a wide range of errors directors and officers can make. Note that policies usually do not cover illegal activities or poor business decisions.
Even though directors and officers liability insurance covers directors and officers as individuals, these policies are often acquired by small businesses. These businesses will supply their leaders with this coverage because leaders are exposed to the additional risks by assuming roles as directors or officers.
5. Liquor Liability Insurance
Liquor liability insurance more or less covers alcohol – related incidents, which are frequently excluded by general liability policies. A particular liquor liability policy may include protection for:
- Fights between intoxicated patrons
- Other forms of assault and battery
- DUI accidents caused by patrons who leave intoxicated
- Employees who drink while on the job
- Mental injuries suffered by witnesses of an incident
In many states, businesses that sell or serve alcohol are required to acquire liquor liability insurance in order to obtain a liquor license. Businesses that offer alcohol at an occasional company event can purchase a policy that only covers an event (and thus has lower premiums).
6. Cyber Liability Insurance
Cyber liability insurance is a new form of liability insurance, but it is rapidly becoming increasingly important as online threats proliferate. Although commercial property policies protect physical property and general liability policies protect against many physical risks, cyber policies help safeguard businesses’ digital data from digital threats.
Since cyber policies are still relatively new, they haven’t yet been standardized as much as general liability policies. A policy might cover data breaches, successful hacks, and cyber extortion, among other risks. Meanwhile, businesses that manage customers’ financial accounts or medical details, of course, should have a cyber policy. Even businesses that have customers’ credit cards or contact information may want the security that this type of coverage offers.
Product liability insurance is known to cover damage and injuries caused by products that a business makes, transports or sells. Also note that some general liability policies offer a little coverage for product – related damage and injury claims, but general liability policies’ product liability protections are frequently limited.
However, Businesses will likely get more protections through product liability policies, so this is an ideal add – on to your general liability policy if your small business centres on the products it produces.
Also have it in mind that product liability insurance isn’t just for manufacturers, although they are great candidates for this type of liability insurance. Distributors, wholesalers, retailers and even transporters can gain from the protections offered, because they may be held responsible for incidents if products are found to have been damaged while in their care.
Note that business that own vehicles or rely on others’ vehicles for work – related purposes are often mandated by law to carry commercial auto insurance. The insurance normally is expected to at least provide state – mandated minimum levels of coverage.
In many cases, businesses elect to purchase additional coverage beyond what is legally required. Nonetheless, there are two types of commercial auto insurance policies for businesses. A traditional commercial auto policy is more like a personal policy that is been adapted for a business’ particular situation. It puts together liability insurance and property insurance coverage.
While a hired and non – owned auto policy is used when businesses have employees drive their personal vehicles or rented vehicles for work. Note that these policies extend coverage to vehicles that a business doesn’t own — but only when those vehicles are being used by the business’ employees.
A business owner policy packages all required coverage a business owner would need. Often, BOP’s will combine business interruption insurance, property insurance, vehicle coverage, liability insurance, and crime insurance. However, owing to a company’s specific needs, you can alter what is included in a BOP. Typically, a business owner will save money by choosing a BOP because the bundle of services often costs less than the total cost of all the individual coverage.
10. Commercial Liability
Commercial liability insurance can be another way of referring to general liability insurance. Most times, it refers to 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
For instance, 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 have to 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.