When the unexpected happens, turn to your small business liability insurance
Before deciding who needs business liability insurance and who does not, let us first of all define what exactly it is.
Business liability insurance is a cover that protects a business from claims for damages resulting from use of products, goods or services supplied by the company.
An occupant of a hotel room who slips on a defective floor and hurts himself can sue the hotel for damages. A person who hurts himself using a defective power tool can sue the manufacturer for damages.
No business can work in a vacuum. It must focus on the outside market to succeed; no matter what the niche, there will always be interaction with external parties.
If any of these parties suffers any injury or loss because of the interaction, the company may be liable for damages.
If you look at it in that light, just about every company from the biggest multinational to the small mom and pop operation needs liability insurance.
It is a misconception that small business liability insurance is a waste of money. Every business needs it.
Running a business always has an element of risk involved. Otherwise everyone would be a successful businessperson. Even with the best of care, a customer can get hurt.
Or perhaps perceive that he has been hurt by your business, even if that is not the case.
Over 78% of all businesses in America are either sole proprietary of partnership concerns.
This means that the owners of the businesses are personally liable for any damage or injuries. Small business liability insurance protects them from personal loss due to a commercial mishap.
Even in the case of Limited Liability Companies (LLCs) or incorporated companies, the owner(s) are not protected completely from personal liability.
They can be held liable in cases where they have signed a personal guarantee, injured someone by their direct and personal action or acted in an irresponsible or even illegal manner.
They are also liable if they have not kept a clear separation between their business and personal property and areas of operation. Business liability insurance is essential for LLCs and incorporated companies also.
There are three broad types of business liability insurance and you need to understand how many of them you need to opt for to protect yourself and your business.
- Product Liability Insurance: Any business that manufactures and / or sells any products where the user is liable to injury, even if it is not caused by a defective product, should have this form of business liability insurance.
The amount of coverage will depend on the nature of the product being sold and used. For example, a manufacturer of baseballs will need far less product liability insurance as compared to a manufacturer of chain saws.
- Professional Liability Insurance: This applies specially to those businesses providing services.
This will protect the business and the owner against claims for malpractice, errors, negligence and omissions. For example a builder will need this in case a person is injured by a brick falling off a house he has built.
Or a doctor will need protection against liability in case a patient did not respond to treatment or the treatment made him worse. This is also now used by technology consultants who need to protect themselves from liability in case of, say, software they have created.
- General Liability Insurance: This is the most common type of business liability insurance and in many cases all that is needed. In general it will protect a business from injury and damage claims.
It can also incorporate protection against claims for false or misleading advertising or product promotion. This is also known as Commercial General Liability (GCL) insurance.
In most cases a company will start off with this and then add other business liability insurance depending on the specific requirements of their type of business.
Whatever may be your type of business, do not take it for granted that you do not need business liability insurance. The chances are that you do.
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