You can only hope you’ll make it through your entire career free of lawsuits. However, the possibility does exist and if you’re forced to pay out of pocket to deal with one, you could watch your life’s work slip through your fingers. For this reason, small business liability insurance is a necessity, regardless of the industry in which you work. Here’s what else small businesses need to know about liability.
Incorporating helps in most situations
If you’re working as a freelancer, sole proprietor or in a partnership you can be held individually liable for perceived malfeasances. Further, if a judgment goes against you, your personal assets (homes, retirement plans, anything else of significant value) can be attached to settle the case.
If you’re incorporated, or functioning as a limited liability company (LLC), business-related complaints are lodged against the organization as opposed to you personally. In that case, your home, savings and investments are shielded. By the way, if you’re thinking, “So what? I don’t have anything for them to take,” be aware your personal assets can be vulnerable for up to 22 years following a judgment.
However, there are other personal liability concerns
While getting a corporate shield in place is a good first step, there are situations in which your personal assets can still be at risk. If it can be proven you’ve mixed your business and personal funds, you’ll pay out of your own pocket. If your individual actions result in a personal injury, you’ll be exposed as well. Committing crimes and coloring outside of the lines in terms of your business dealings will also put your personal property and assets into play. Additionally, if you guarantee a loan personally for the business and it goes awry, you’ll be held liable for repayment. You must also be diligent about keeping your LLC or corporation designation in good standing. If it lapses during the incident in question, the family jewels will be fair game.
Liability insurance is a must-have
Business liability insurance falls into one of three primary categories: general liability, product liability and professional liability.
-General liability covers personal injury, damage and negligence claims. This is the baseline coverage foundation for a small business operator will need and comes as part of a Business Owners Policy (BOP).
-Product liability comes into play if one of your company’s products injures someone or causes harm. Generally speaking, manufacturing businesses, wholesalers and distributors should have higher coverage limits for this.
-Professional liability covers accusations of malpractice, errors, omissions and negligence. Anyone who gives advice or renders professional services must consider this coverage.
So, here’s what small businesses need to know about liability: There is always the chance something can go sideways regardless of how diligent you are. In that instance, small business liability insurance could be the difference between weathering the storm and going out with the tide. Your exact mix of coverage depends on the size of your company and your industry.
Find coverage that’s a perfect fit for your small business with CoverHound.