What is Business Liability Insurance?
Business liability insurance protects a company if it gets sued for something it did that caused harm to someone else. It pays for things like lawyer fees to defend the company in court and money the company might owe if it loses a lawsuit or agrees to a settlement to end the case.
Different Kinds of Business Liability
There are a few main types of liabilities a business might have:
Direct liability is when the company itself does something wrong that hurts another person or business. Maybe one of its products hurts a customer who then sues.
Indirect liability occurs when a company is blamed for something another company did on its behalf. For example, if a business hires a delivery service that gets in a bad accident, the business can be sued even though its own employees weren’t driving the truck.
Medical payments coverage is for when someone gets hurt on the business property or by something the company did. This insurance pays their hospital bills so they’re less likely to sue.
How Much Coverage Should a Company Get?
It depends on how risky the business is. A company that does something dangerous like construction work needs a lot more than one that just sells t-shirts online. The size of the company matters too since bigger businesses with more customers have more chances of getting sued.
Insurance companies consider factors such as a business’s industry, number of employees, income, and history of lawsuits to decide how much to charge for coverage and the limits it should set.
The Cost of Business Insurance
Insurance isn’t cheap but getting sued is way worse. Lawyer fees and court settlements can easily bankrupt a small business if it doesn’t have insurance. That’s why banks often require companies to have liability coverage before giving them a loan.
Premiums and Deductibles
The price of business liability insurance is called the premium. It’s a monthly or yearly fee the company pays to the insurer to keep the policy active. Higher coverage limits cost more.
Most policies also have a deductible, which is the amount the company has to pay out of pocket before the insurance kicks in. Higher deductibles mean lower premiums but more risk for the business. It’s a balancing act.
Saving Money on Premiums
There are some things companies can do to lower their premiums:
Having a spotless legal history helps a lot since insurers see that as less risky. Following all industry safety standards is important too.
Choosing a higher deductible saves on monthly costs if the company can afford the higher out of pocket expense if something happens.
Some insurers give discounts if the business buys multiple policies from them, like liability and property coverage. That’s called bundling.
When to File a Claim
Nobody wants to use their insurance but sometimes it’s necessary. If the business gets sued or someone demands payment for damages, that’s when the company contacts its insurer.
The Claims Process
The insurance company assigns a lawyer and a claims adjuster to the case. The lawyer defends the company in court while the adjuster investigates to see if the claim is valid.
Valid claims get paid up to the coverage limits minus the deductible. Sometimes there’s a settlement where both sides agree to end the lawsuit for a set amount.
Invalid claims get denied and the business doesn’t owe anything beyond its legal defense fees which the insurance still covers.
When Claims Get Denied
Insurers won’t pay claims for things that aren’t covered in the policy language. Intentional illegal acts by the company are never covered.
Normal wear and tear usually isn’t covered either. If a company’s shoddy workmanship leads to damages over time, that’s on them to fix, not the insurer.
War and terrorism are often excluded too since those are very hard risks to calculate. Big disasters like floods and earthquakes might need separate policies.
The Importance of Honesty
When a company is applying for insurance, it has to answer a bunch of questions about its business truthfully. Lying on the application is a surefire way to get claims denied later.
The same goes for filing claims. Adjusters investigate to make sure the company is telling the truth about what happened. They’ll look for proof like camera footage, documents, and witness statements.
If a company lies and gets caught, the insurer can cancel the whole policy, even for stuff unrelated to that claim. Then the business is stuck paying for everything itself. It might even get charged with insurance fraud which is a serious crime.
Choosing an Insurer
There are tons of companies that offer business liability insurance. It’s important to do some research and compare them to find the best fit.
Where to Start
The company’s industry trade association is a good resource. They often have relationships with insurers who specialize in that field and might offer group discounts to members.
Other business owners can give recommendations too, especially those in the same industry who have had to file claims. Did the insurer handle things quickly and fairly?
An independent insurance agent or broker is another option. They work with a bunch of insurers and can compare policies and prices to find the right match.
What to Look For
First, only work with a reputable insurer that’s licensed to do business in that state. Check their financials to make sure they’re solvent and can actually pay claims.
Look at customer reviews and complaints to see how they handle things when there’s a problem. The state insurance commissioner’s office keeps those records.
See what’s covered in the policy and what’s excluded. Does it match the company’s needs? Are the limits high enough? How much is the deductible?
Price matters but it shouldn’t be the only factor. Cheap insurance is worthless if the insurer won’t pay claims. Look for a balance of good coverage, affordable premiums, and quality customer service.
