Starting a business is an exciting process; that is, until you start to deal with all the paperwork and legal considerations that come along with it. Many entrepreneurs are advised to get general liability insurance (also known as commercial liability insurance) but many don’t know what it means, what it protects, how it works, or how much coverage they need.
To gain a better understanding of this protective aspect of doing business, read on to learn the 4 things every entrepreneur and business owner should know about insurance:
#1 What General Liability Insurance Does For a Business.
General liability insurance protects a company, the owner, and its employees from a variety of claims that may arise from the act of doing business. Claims may include bodily injury, property damage, personal injury, misleading advertising, copyright infringement, and more. The insurance itself protects your assets and pays – up to your policy’s limits – for any incurred obligations (i.e. medical costs), legal defense costs, and any settlement or awards should you be successfully sued for issues that arise on your property.
Typically, general liability insurance does NOT cover employee injuries, professional mistakes, auto-related coverage, punitive damages, intentional acts, and claims related to the quality of your work. Different forms of insurance are usually required.
#2 How General Liability Insurance Works.
A general liability policy will usually cover and pay for a certain amount of a liability claim and legal fees. The amount of coverage you need will depend on the type of business you are in and the perceived risk associated with it. Each insurance plan covers a specific maximum amount, which will be outlined in your policy. You would remain responsible for any remaining balance after your policy has been maxed out. For instance, let’s say your business has general liability coverage for $250,000. If your business is liable for $200,000 and you incur $100,000 in legal fees, that’s $300,000. Since your coverage maxed out at $250,000, you would be responsible for paying the remaining $50,000.
#3 Determining Coverage Needs.
As stated above, determining how much coverage you need depends on your type of business and the perceived risk that comes with it. Riskier professions, like building contractors, tend to need more coverage than say, a clothing designer. Your coverage may also depend on where your business is located, as some states tend to award more in damages to plaintiffs claiming personal injury.
First, research your options on buying insurance. Then, discuss and determine your coverage with a licensed insurance broker. You’ll find that depending on your business size, location, and perceived risk, there are many options.
#4 Other Insurance Your Business May Need.
Every state has its own insurance requirements for businesses, and depending on the nature of your business, you may need more than general liability insurance. This “other” business insurance may include auto insurance, home business insurance, alcohol liability insurance, product liability insurance, environmental and pollution insurance, and more. Most states also have specific insurance requirements for employers, in which they are required to pay workers’ compensation insurance and state disability insurance.
Conclusion
We live in a litigious society, and liability insurance can help protect your assets. Even if you don’t think you’ll ever face a claim, it’s wise for business owners to look into their options and requirements. Be sure to consult a qualified business insurance agent on your specific business needs.