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Survival Guide: Do I Need Liability Insurance For My Small Business?

Do I need liability insurance for my small business? As a small business owner, this question may have crossed your mind, but buying a liability insurance policy is probably the last thing on your to-do list. However, it should be one of your first priorities when opening a business; liability insurance is crucial to ensure long-term financial security, protect against third-party claims, boost credibility, and give you and your clients peace of mind. 

Survival Guide: Do I Need Liability Insurance For My Small Business

Part of the cost of doing business is getting liability insurance. As you chase after high-value projects and the clients financing them, the question, "Do I need liability insurance for my small business?" turns into a statement: "I need liability insurance for my small business!"

Your clients want to make sure they can be easily reimbursed in case something goes wrong. Additionally, having liability insurance protects your finances by avoiding high out-of-pocket costs.

“The more money somebody’s willing to pay you to do a job, the more likely they’re going to want you to have comprehensive coverage.”
- Felix, CoverHound

Let’s discuss what a liability policy is, how it can be customized to your needs, and what you’ll need to do to secure one in this quick guide. 

What Is Liability Insurance For Small Businesses?

Do you need liability insurance for your small business? Liability insurance is a type of insurance that covers expenses related to third-party property damage and bodily injury.

Many people think about how insurance will protect them when they consider getting an insurance policy. However, liability insurance is designed to protect a third party. In doing so, you, the policyholder, are protected from massive financial damages. 

Common types of liability insurance include general liability insurance, product liability insurance, commercial auto insurance, professional liability, and workers’ compensation. 

Most small business owners have a general liability insurance and workers’ compensation policy at minimum. A general liability insurance policy has some exclusions, like all insurance policies, but it also provides the widest coverage of all of the aforementioned policies.

General liability insurance will pay for financial damages incurred due to third-party property damage and bodily injury, as well as advertising injury, copyright infringement, and damage to rented property. 

Workers’ compensation is required by law in almost every state if your business employs at least one person. A workers’ compensation policy will cover the costs associated with work-related injuries and the salary owed to an employee for the time they missed due to a work-related injury. 

Other liability policies are more specific, like commercial auto and product liability, and may only apply to specific small businesses. However, the main benefit your small business receives from any of these liability policies is protection from having to pay out of pocket for third-party expenses. This protects your business from insurmountable financial harm.

There are often exclusions to liability policies, and many business owners may make the mistake of assuming third-party damages that occur in any situation are covered. Here are some common exclusions you should be aware of: 

Liability policies also exclude lawsuits against company leaders and officers and financial losses that the insured suffers. When buying a liability policy, ask your provider about exclusions. You may be able to receive coverage for something that would normally be excluded by bundling policies in a business owner’s policy (BOP). 

What Is a Business Owner’s Policy?

A business owner's policy is a simplified bundle of necessary insurance policies for small business owners that are sold together. This premium is less than the overall cost of each policy in sum, making it a wise choice for business owners looking for comprehensive, tailored coverage. 

The policies typically included in a BOP are general liability, business property insurance, and interruption coverage. BOP’s are tailored to small businesses so that you can get the insurance coverage you need — nothing more, nothing less. 

Like all policies, a BOP does have exclusions, such as damage to rented property, on-the-job injuries (this is what workers’ compensation covers), malpractice, employee discrimination lawsuits, fraud or intentional injury, and failure to protect sensitive information. 

The Consequence of Going Uninsured

When considering if your small business needs liability insurance, think about the repercussions of not having one. Forgoing liability insurance can lead to significant financial losses, such as legal costs due to negligence or malpractice.

Take a look at these statistics:

For small businesses, the question isn’t always if you’ll face legal action, but when. Will you be prepared to defend your business and maintain financial stability in the face of a lawsuit? When you invest in liability insurance, you can be ready for any legal action that comes your way. 

Insurance Quote Requirements for Small Businesses

Liability insurance is vital to your business’s long term financial stability and growth. Before you go to get a quote, you should sit down and calculate what you can realistically make within a year of being in business. 

Consider how many clients you’ll need to make a projected amount of revenue, and what you think you’ll be able to realistically make. Be cautious of overestimating or underestimating. Giving your insurance agent a grossly overinflated number may lead to you paying much more than necessary on your premium. 

On the other hand, providing a number that’s too small to account for a year’s worth of growth may lead to a lack of adequate coverage and leave your business vulnerable to risk. There’s no need to come up with a net income number; all an insurance agent needs from you is your projected gross revenue for the next twelve months. 

Other factors an insurance agent will take into consideration when providing a quote are how many employees you project to have and how much money you have in personal property. Doing a realistic analysis of these numbers beforehand will make the insurance process much more efficient for you and an experienced insurance agent.

Now You Can Confidently Find Liability Insurance for Your Small Business

Liability insurance is a foundational part of building a small business, establishing your long-term financial security, building credibility among your clientele, and bringing you peace of mind. With a Business Owner’s Policy (BOP), you can pick the insurance policies that are tailored to your business needs and leave the rest. 

When you work with CoverHound, you get personalized help from experienced insurance agents as you navigate our online platform. Manage all of your policies in one place and choose from verified insurance providers as you search for your liability policy. 

Learn more about how CoverHound’s liability insurance services can help your small business thrive!

Insurance shopping simplified

Review personalized quotes, select coverages, and buy online - Everything insurance, all-in-one-place.

Insurance shopping simplified

Review personalized quotes, select coverages, and buy online - Everything insurance, all-in-one-place.

Insurance shopping simplified

Review personalized quotes, select coverages, and buy online - Everything insurance, all-in-one-place.
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