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How to Choose the Right Business Liability Insurance for Your Small Business

How to Choose the Right Business Liability Insurance for Your Small Business

business people discussing insurance paperwork

Every business needs to be prepared for certain risks; whether it is knowing the best business checking accounts for your LLC or buying the right business insurance. But in addition to considering insurance to cover damage to your business from a natural disaster or fire, or insuring your own personal health or your employees’ health with health insurance or disability insurance, every business owner needs to consider buying business liability insurance.

Business liability insurance can help protect your business from certain risks and significant costs of being sued as a result of doing business. Even if you are a solo entrepreneur or small business owner with only a few employees, there are several reasons why business liability insurance is a good investment to help your business avoid catastrophic costs and legal vulnerability in case something goes wrong in your business operations or if a client relationship ends badly.

Learn more about business liability insurance, how to choose the right policy and how it can help protect your business.

What Is Business Liability Insurance?

Business liability insurance, also called “general liability insurance,” is a type of insurance for businesses that helps protect the business against the costs of lawsuits. If your business gets sued, business liability insurance can help pay for your attorney fees and legal defense expenses. If your business is found liable in a lawsuit and is ordered by a judge to pay damages, the business liability insurance policy can help to cover those costs, up to the limits of the policy.

What Situations Does Business Liability Insurance Cover?

A typical general liability insurance policy should cover a few key types of risks and situations, most of which might apply to your business:

  • Product Liability: If you sell products, business liability insurance can help protect you in case your product causes bodily injury or property damage to your customers.
  • Third-Party Bodily Injury: If someone is at your business location and they slip and fall and suffer a serious injury, they might be able to sue you for damages and medical bills.
  • Third-Party Property Damage: If you or your employees damage someone else’s property as a result of doing business, such as accidentally breaking a door while making a delivery, insurance can help cover those costs.
  • Tenants Legal Liability: If you or an employee cause damage to a property that your business is renting, such as office space, warehouse space or other rental property, the policy can help cover the costs of repairs.
  • Libel, Slander and Copyright: If your business gets sued for false advertising, stealing someone else’s ideas or intellectual property or bad-mouthing a client, customer or competitor in a way that violates the law, you could benefit from business liability insurance.

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How Much Business Liability Insurance Do You Need?

According to Incfile partner CoverWallet, most business liability insurance policies provide coverage of up to $1 million per occurrence and $2 million in aggregate. You can also buy additional coverage in the form of an umbrella policy or excess insurance policy.

When choosing a policy, make sure your business liability insurance covers all of these aspects of going through a lawsuit:

  • Defense Costs: These are attorney’s fees, witness costs, court costs and other costs involved with defending your business against a lawsuit.
  • Judgments and Medical Expenses: This is beneficial if you are found to be at fault and the court orders you to pay for someone else’s medical bills or any other damages.
  • Lost Income: A good policy will also help cover your lost or interrupted business income in case you need to take time away from the business to appear in court or assist with your legal defense.

There are a few other risks and situations that are typically not covered by a business liability insurance policy, such as Business Vehicle Insurance, Professional Liability Insurance, Business Identity Theft Insurance and Employment Practices Liability (ELI) Insurance. Depending on your business, you might want to get additional coverage for these specific risks.

How to Choose the Right Business Liability Insurance

Business Colleagues Meeting with Paperwork

Not every business liability insurance policy is the same, and not every business has the same risks and specific needs for liability coverage. Before you buy a business liability insurance policy, or if you are thinking about making changes to your current policy, consider these questions:

  1. What are the biggest risks facing your business? Not every business needs to protect against risks in the same way; if you are a company that makes products or that has a brick-and-mortar retail location, you might need more coverage for things like product liability or third-party bodily injury liability. If you run a consulting business or legal practice, you might need more coverage for professional liability in case a client claims that they were harmed by your advice. Risks are also different for businesses that have employees vs. businesses that are single-member LLCs. Think carefully about which business-related risks you are most concerned about and what keeps you up at night, and then address those concerns with your business liability protection.
  2. Do you have an insurance broker or insurance agent? If you are already working with an insurance agent or broker for your health insurance and other insurance coverages, this same insurance professional can often help you find a business liability policy. Insurance agents and brokers can help you navigate your options and understand the costs, limits and coverages of various types of policies. If you have not worked with an insurance agent before, Incfile is partnering with CoverWallet to help small business owners get the right coverage at the right price.
  3. What’s the insurance company’s rating? Insurance companies are rated by a few different insurance rating organizations, such as A.M. Best, Fitch, Moody’s and Standard & Poor’s. These ratings can help you understand the financial stability of the insurance company you’re interested in. This information can give you peace of mind that the company will be able to service your policy and pay claims. Also check the customer reviews of any company you’re considering. Is their claims process slow? Will you be able to talk with someone on the phone when you need to, or is everything internet-based? These factors can all affect your experience
  4. Did you read the fine print? As the policyholder, it is your responsibility to read and understand the exact details of your business liability insurance policy. Read the whole thing. Ask questions if needed. Make sure you understand the limitations on coverage and ask to fill gaps for any areas of specific concern.
  5. What are my costs? The cost of your deductible and premiums will likely be a big factor in choosing the right insurance for you. Make sure you understand what you’ll be paying each month or annually. Determine what you may pay out of pocket in the event of a lawsuit or injury too. These costs can add up and you want to know what your potential costs may be so that you can select the right plan.
  6. Have there been changes to your business’s insurance needs and liability risks? Businesses go through lots of changes as they grow, and this includes the types of risks that businesses have to manage. Have you recently opened a new retail space? Have you rented office space? Have you hired your first employee? Have you started offering a new line of products or professional services? If something big about your business operations has recently changed, your business liability insurance coverage might need to change too. As your business grows, you have more to protect.

Business liability insurance is not most business owners’ favorite topic to think about; no one wants to get sued or cause suffering and harm. Most business owners take pride in doing business the right way, have high ethics and integrity and want to simply make a living selling great products and services to their customers.

But sometimes even with the best intentions, costly accidents, mistakes and misunderstandings happen. In the worst-case scenarios of being in business, you need to have business liability insurance to protect your business’s future and help you keep doing what you love for years to come.