Small Business Liability Insurance
78% of US businesses are partnerships and sole proprietorships, both of which leave owners’ business and personal assets at risk from litigation. Simply put: small business liability insurance protects owners from financial ruin. Given the litigious nature of society, it’s vital for owners to make sure they’re covered.
Basics of Liability Insurance
Small business liability insurance covers small business owners in the event that they’re sued, protecting both business and personal assets. Insurance policies usually cover both damages of an unfavorable outcome and the legal costs associated with the lawsuit. There are four types of liability coverage, addressing the needs of specific businesses or industries.
Types of Liability Insurance Coverage
The most common coverage is general liability insurance – sometimes known as Commercial General Liability. This covers the business in the event of advertising claims, property damages, or injury claims. Some policies also include slander, libel, or infringement of intellectual property rights. Businesses that provide services may also need another type: professional liability insurance. This covers against claims of malpractice, negligence, errors and omissions. For some professions in some states, it may be required, especially in the medical and legal fields. Product liability insurance covers businesses that sell and manufacture products, protecting them in the event that a customer gets injured while using the product. The newest form of liability insurance is employment practices liability insurance. It covers lawsuits for sexual harassment, wrongful termination, or discrimination.
Types of Liability Policies
Liability insurance is either a “claims-made policy” or an “occurrence policy.” Claims-made policies are more common; they protect the business only for claims reported when the policy coverage is in force. Thus, if the policy lapses and a former employee reports a claim – even if the event occurred when the insurance policy was in effect – the insurance company is not obligated to cover any damages. In contrast, occurrence policies may cover claims reported years after the event occurred, even if the insurance coverage has since lapsed. Some claims-made policies include prior-act coverage, which covers acts that occurred during a specific timeframe. Naturally, occurrence policies have higher premiums than do claims-made policies.
Liability Coverage Amount
Liability policies always have a maximum amount they cover during the policy period. They also usually include a per-occurrence maximum. If the business is sued for $2 million and its occurrence maximum is $1 million, then the insurance would pay $1 million and the company would have to pay the extra $1 million. To cover this gap, businesses sometimes get an umbrella policy. Owners should know what type of coverage they need and read the fine print to make sure the umbrella policy appropriately covers all gaps.
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