Learn about small business liability insurance.
As a small business owner, you may find yourself balancing what is essential to the well-being of your business, especially when it comes to all the different types of insurance you could decide to buy. Small business general liability insurance is not a luxury, according to the U.S. Small Business Administration. It may be tempting to skip out on buying it, but general liability insurance for a small business could be the only thing standing in the way of financial ruin if there is an injury on the business property or damage caused in some way by the company.
Keep in mind that not all forms of general liability insurance plans are equal. How much coverage is appropriate, for example? The first step is to learn the basics of general liability insurance for the small business, so you make smart choices. Once you’ve purchased a general liability plan, then you can move on to other important insurance options like picking a health insurance plan from eHealth.com.
What is small business general liability insurance?
As the name suggests, small business general liability insurance covers the company if certain claims are made against it. People often associate this form of business insurance with what pays the medical bills for the customer that slips and falls on the ice in the parking lot.
It’s true that small business general liability insurance might pay for that sort of claim, but the coverage often goes way beyond injury of a customer on the property. General liability insurance for small businesses can be very comprehensive. It can cover:
- Legal fees
- Awarded settlements
- Compensatory damages
- Non-monetary losses
- Punitive damages
This insurance is not limited to physical injuries, either. Let’s say that same customer is carrying a very expensive laptop or smartphone and drops it just in time for an employee to run over it with a cart. Small business general liability insurance might pay to replace the item or compensate the customer for that loss. Companies that rent the store property might be able to use their general liability insurance for small business to pay for any damage they do to that space, as well.
This insurance may cover virtual damage, too, sometimes for an additional fee. For example, maybe a customer is looking for compensation because the small business was hacked and his credit card number was stolen.
What small business liability insurance does not cover
Small business general liability insurance works like an umbrella to cover damage done to a person who does not work for the company. The employee that falls off a ladder at work and breaks his or her leg must typically file a claim with workers’ compensation because the general liability insurance for small businesses does not typically protect anyone working for the company.
While general liability insurance for small businesses usually extends to your company’s rented space, it generally will not cover damage done to property owned by your business. Other restrictions on this insurance may include:
- Employment disputes
- Damage to company vehicles
- Professional errors
These issues have other types of insurance that specialize in covering specific issues; there is a huge variety of commercial insurance types for your small business.
What type of enterprise benefits from general liability insurance for small businesses?
The truth is companies of all sizes could benefit from this type of basic insurance. General business liability insurance is especially important for the smaller company with limited finances, though. In this day and age, one lawsuit can cost hundreds of thousands. That could completely drain your business’ finances, and even your own private finances, as the owner.
The general liability plan comes with limitations, though. The insurance provides an outline for the maximum money available. If a settlement is more than the insurance pays, your company may be responsible for the remaining balance.
How much general liability insurance do small businesses need?
That depends on many factors including the possible risk, budget restraints and how much other insurance the business carries. A small business with high risks for injury like a gym, for example, or a business in a region known for snow or ice, might opt for more coverage. A company with no physical space typically carries less risk, so it might pick a smaller plan.
Small business general liability insurance is an important type of coverage to have for your small business, but it’s just one in a number of insurance options your company may need. Smart business owners need to budget for this and other plans to ensure their financial safety.
Be sure to read the official policy documentation of any insurance policy you select to make sure it matches your needs and works the way you expect.
This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.