Savvy business owners manage risks proactively. This includes having liability insurance to help protect their companies when a business-related accident or mistake harms a third party.
Choosing the right kind of liability policy isn't always easy. Answer these questions to help determine what your business liability insurance:
Almost all businesses can answer yes to this question, but many underestimate their exposure to this risk. More than one in three businesses have faced a lawsuit, and 73 percent of these companies said their business suffered as a result, according to a report from the U.S. Chamber of Commerce.
It's easy to imagine a coffee shop needing to guard against slips on wet floors and hot-liquid burns. It's less obvious why an accountant working out of her home might need protection. But, even companies with limited physical perils may benefit from liability coverage through one or more of these types of policies:
- General Liability. This protects companies from claims related to injuries and damages to other people's property. If you or an employee accidentally hurts someone or destroys their belongings while doing your work, this coverage shields against related lawsuits. Depending on your business, this may be the only kind of insurance you need.
- Product Liability. This type of insurance protects against defective products and services that cause harm. Manufacturing, wholesale, distribution and retail companies may benefit from this coverage because they are accountable for product safety.
- Professional Liability. Also called Errors and Omissions insurance, these policies cover unintentional mistakes made by businesses that provide services. They may be appropriate for companies that give advice, make recommendations and design solutions, such as consultants, software developers and marketing firms.
- Employment Practices Liability. This type of coverage offers protection against an employee's claim of unfair treatment or discrimination.
- Directors and Officers Liability. This policy helps protect company directors and officers from lawsuits claiming they managed the business irresponsibly.
The Small Business Administration website offers tips for choosing the right coverage for your business.
Some landlords, government agencies and large corporations require tenants and vendors to carry liability coverage. This will usually be spelled out in a contract that includes the specific amount and type of coverage needed. In addition, financial lenders and investors may require you to maintain liability, business interruption and other types of insurance to help protect their investments.
Some states require specific professions to carry liability protection, such as physicians. In addition, your state may require that you carry workers' compensation coverage with employer liability protection. Because states regulate their own insurance laws, each operates its own division to handle insurance administration and regulations. The National Association of Insurance Commissioners offers a list of links to Departments of Insurance in each state.
Legal fees can climb quickly when a company is sued, regardless of whether the case has any merit. Businesses can expect to pay between $50 and $1,000 an hour or more, according to Lawyers.com. If the lawsuit is successful, ensuing judgments can add another shock to the bank account, and unprotected businesses may be forced to close their doors. Business liability insurance helps protect against these vulnerabilities.
Make sure you have the right business liability insurance in place for your business. Find your local Allstate agent or click here to learn more.