{"id":72,"date":"2023-10-16T10:07:33","date_gmt":"2023-10-16T10:07:33","guid":{"rendered":"https:\/\/businessyield.com\/ins\/?p=72"},"modified":"2023-10-16T10:09:24","modified_gmt":"2023-10-16T10:09:24","slug":"small-business-liability-insurance-how-does-it-work","status":"publish","type":"post","link":"https:\/\/businessyield.com\/ins\/business-insurance\/small-business-liability-insurance-how-does-it-work\/","title":{"rendered":"Small Business Liability Insurance: How Does It Work?"},"content":{"rendered":"

Small business liability insurance is a type of business insurance that covers your business for accidental injuries and property damage caused to others. It also covers other problems such as advertising injury, copyright infringement, and reputational harm.<\/p>

These types of claims may result from your company\u2019s products, services, or operations. Without general liability insurance, you could end up paying out of your business\u2019s income and, in a worst-case scenario, even go bankrupt.<\/p>

Such policies cover any direct financial liabilities incurred, as well as any legal defense expenses.<\/p>

Overview of small business liability insurance<\/strong><\/span><\/h2>

Small business owners put their personal finances at risk in the event of a business-related lawsuit. Partnerships and sole proprietorships are particularly vulnerable to exorbitant expenses and are consequently in the greatest need of this type of insurance coverage. Even under the structure of a limited liability corporation (LLC), an owner may still be exposed to personal risk.<\/p>

Business liability insurance protects against accusations that your business caused damages, injuries, or losses. It protects the financial interests of companies and business owners in the event that they face formal lawsuits or any third-party claims. <\/p>

These can include medical costs incurred by a customer who gets hurt on store property, as well as any on-the-job injuries sustained by employees.<\/p>

Business liability insurance is sometimes called \u201cgeneral liability insurance\u201d or \u201ccommercial general liability insurance.\u201d<\/p>

What classifies as a small business?<\/strong><\/span><\/h2>

The U.S. Small Business Administration<\/a> (SBA) defines a small business as an independent business that has fewer than 500 employees. However, this definition can vary by industry.<\/p>

It’s worth noting that the definition of a small business may differ among insurance providers, so it is essential to carefully review your policies and consult with your insurance providers to ensure you meet the specific requirements for coverage.<\/p>

For insurance purposes, only small- to medium-sized businesses that meet certain requirements are eligible for a BOP, according to the III. Insurers may consider several factors when assessing whether a business is eligible for a BOP, which include:<\/p>

Ownership structure<\/strong><\/h5>

The ownership structure of a business can also impact its classification as small, according to the SBA. In some cases, insurance providers may consider factors such as whether the business is independently owned and operated or part of a larger corporate entity.<\/p>

Number of employees<\/strong><\/h5>

One of the primary factors used to classify a business as small is how many people it employs. Typically, businesses with fewer than a certain number of employees are considered small. The threshold is determined by the insurance provider and can range from a handful of employees to several hundred, depending on the industry and the specific insurance policy.<\/p>

Annual revenue<\/strong><\/h5>

In addition to the number of employees, the SBA considers the annual revenue of a business when determining its size. Similarly, insurance providers may set a maximum revenue threshold for small businesses.<\/p>

Industry classification<\/strong><\/h5>

Certain industries have their own unique standards for defining small businesses. For example, the SBA sets industry-specific size standards based on the number of employees or annual revenue. These standards help determine eligibility for government programs and contracts.<\/p>

Types of small business liability insurance<\/strong><\/span><\/h2>

Small business liability insurance protects businesses from legal claims and financial losses resulting from third-party injuries, property damage, or lawsuits. It covers legal defense costs, settlements, or judgments if the business is found legally liable for causing harm or injury to others.<\/p>

This type of insurance is crucial for businesses that interact with customers, clients, or the public and helps protect their financial interests in case of accidents, injuries, or property damage claims.<\/p>

General liability insurance<\/strong><\/h4>

General liability insurance, also known as business or commercial liability insurance, is essential coverage for various claims, including bodily injury, property damage, personal or advertising injury, medical payments, products-completed operations, and damages to premises rented to you. <\/p>

Virtually every small business owner or contractor should have some form of general liability insurance. When buying small business insurance and comparing policies, keep in mind that your rates will depend on your business\u2019s specific features.<\/p>

Professional liability insurance<\/strong><\/h4>

Professional liability insurance, also known as errors and omissions (E&O) insurance, protects businesses that offer professional services. B2C businesses often use E&O coverage to protect against claims stating their services caused clients financial distress or bodily injury. <\/p>

Doctors\u2019 malpractice insurance is a common type of professional liability insurance. This insurance type is also essential for professional service providers like consultants and financial advisors. Costs for professional liability insurance will vary depending on the industry and profession. For example, a doctor would likely pay more than a CPA.<\/p>

Employment Practices Liability Insurance (EPLI)<\/strong><\/h4>

Small businesses with employees often benefit from employment practices liability insurance. This insurance type protects you if an employee files a claim against you for wrongful discipline or termination, sexual harassment, discrimination, negligent evaluation, breach of employment contract, mismanagement of employee benefits, or wrongful infliction of emotional distress. <\/p>

Some insurers offer EPLI as stand-alone coverage, whereas others offer it as an endorsement to their BOP. Your policy\u2019s terms and conditions will depend on the coverage you choose. Your business type, number of employees, and various risk factors all play a part in the cost of EPLI.<\/p>

Product liability insurance<\/strong><\/h4>

Product liability insurance provides more protection and security than a standard product warranty or guarantee. This coverage protects your business if a product causes damage or injury to a third party, or if your business faces a product-related lawsuit. <\/p>

For example, if your product had a lithium battery that caught on fire, injuring the consumer, they could sue you. Product liability insurance covers you in this instance. <\/p>

Management liability insurance<\/strong><\/h4>

Management liability insurance is a combination of coverages used to protect private, public and nonprofit companies from various board-level exposures. It protects against the risks of managing a business and is purchased by organizations with a board of directors. <\/p>

A typical management liability insurance package includes coverage for employment practices liability, fiduciary liability and D&O liability.<\/p>

Contractors’ professional liability insurance<\/strong><\/h4>

If your business is in the design-build or construction management industry, you are required to purchase some form of contractors\u2019 professional liability insurance. This coverage protects professionals against construction errors or losses incurred when designing, engineering and constructing a building. <\/p>

It can also protect you from errors made by third-party vendors associated with a project.<\/p>

Business Owners Policy (BOP)<\/strong><\/h4>

If you want general liability insurance and property coverage, you can package them together in a business owner’s insurance policy, also known as a BOP. A BOP provides liability coverage for customer injury, property damage, and product-related claims, in addition to commercial building and movable property coverage. <\/p>

Many BOPs also include business interruption coverage, which pays your lost revenues if you close for a covered claim. This coverage type is ideal for owners of small and midsize businesses like restaurants, retail stores, and wholesalers. Keep in mind that BOP insurance doesn\u2019t cover your employees. <\/p>

Directors and officers (D&O) liability insurance<\/strong><\/h4>

If your business has a corporate board of directors or advisory committee, you want D&O insurance. This insurance protects your directors\u2019 and officers\u2019 assets if they are personally sued for wrongful acts in company management (e.g., failure to comply with workplace laws, fraud, theft of intellectual property, misrepresentation of company assets, or misuse of company funds). <\/p>

Types of small businesses that benefit from liability insurance<\/strong><\/h2>

The types of small businesses that typically buy liability insurance include:<\/p>