General liability insurance protects businesses from lawsuits related to property damage, personal injuries, and libel and slander. While it isn’t a legal requirement in most states, it’s essential because a lawsuit can cost hundreds of thousands or even millions of dollars and ruin a small business. Read on to find out what kind of protection liability insurance offers and why virtually every business owner needs to take out a policy.
Are You Required to Get General Liability Insurance?
Getting liability insurance isn’t legally required in most areas. In some states, contractors need to take out a policy, but in California, this isn’t the case, and each business owner can choose what type of insurance they purchase. Because we live in a litigious society and lawsuits are very common, almost every type of small business needs liability insurance.
If you’re not covered, you might face a lawsuit that ruins your company’s financial future. The average personal injury lawsuit costs between $50,000 and $100,000, but if someone gets seriously hurt or passes away on your premises, you might have to pay $1 million or more. Lawsuits related to property damage, libel, and slander can also be extremely expensive, so it’s best to get insurance.
An Accident at Your Shop or Office
Personal injury lawsuits are common, and they can damage a business’s reputation and finances. If you run your company from a physical location, and customers visit you in person, you’re at risk because you might get sued if someone slips, falls, or gets injured in another way. As mentioned, most personal injury lawsuits are minor, but you might still have to pay tens of thousands of dollars, as well as legal expenses.
You’ll be charged a six or seven-figure amount if the injured person can no longer do their job, has to spend several weeks or months at a hospital, or needs ongoing care due to their injuries. Most liability insurance policies cover you for $1 to $2 million, so you’ll be protected, even if the plaintiff asks for a large sum of money.
Property Damage
Accidents and injuries aren’t the only problems that can lead to a general liability lawsuit. You might also get sued if someone’s property is damaged due to your company’s negligence. This is often an issue for contractors who visit customers at their own homes. If an employee of a contracting firm accidentally damages a customer’s building while working there, the business might get sued.
These kinds of lawsuits can range from a few thousand dollars to hundreds of thousands. No matter how careful you and your employees are, there are no guarantees, and accidents happen. A good liability insurance policy will cover your customer’s damage as well as your legal fees.
A Problem with an Advertisement
Libel and slander are untrue statements about someone that damage the person’s reputation. While libel always refers to written statements, slander occurs when someone makes a verbal statement about someone else. This could be in a public setting, like on the radio or on a podcast, or it could be in private.
Businesses might get sued for libel or slander if they inadvertently make an untrue statement while advertising their product or service. If you advertise your business online or in a public setting, you need to get liability insurance.
Product Liability
Some general liability insurance policies also protect businesses from product liability lawsuits. A company might get sued if their product stops working after a few days or weeks and therefore damages other structures in the building or harms someone. This is a particular problem for contractors. If a plumber installs a new sink and it starts leaking, it might damage the customer’s bathroom floor or walls.
The customer can then ask the contractor to pay for the damage. Depending on the exact nature of the product liability lawsuit, it might be covered by general liability, or the business might need to take out professional liability insurance. If you’re not sure about what is and isn’t covered by your policy, speak to an insurance agent. They will help you to make sure that you aren’t underinsured and therefore put your company at risk.
Client and Business Partners’ Requirements
As you can see, getting liability insurance is crucial because it protects your business from lawsuits that could ruin your financial stability. By taking out a policy, you show that you are a responsible business owner and that you’re invested in the future of your company. This is important when applying for large projects or working together with other businesses.
Some people refuse to hire companies that don’t have insurance because they don’t want to put their home, health, or business at risk. The small amount you pay for liability insurance is well worth it when you consider that you’ll be much more likely to land important clients when you’re properly insured.
How Much Insurance Do I Need?
One of the most common options is the $1 million/ $2 million policy. It comes with a $1 million occurrence limit, so you’ll receive a maximum of $1 million for every lawsuit. The aggregate limit for the duration of the policy is $2 million, so you won’t receive more than this in total. Most policies last for one year, so you can expect the aggregate limit to reset after 12 months.
If you’re not sure whether this amount of insurance is right for you, ask us at ISU Armac. We’ll analyze your company’s location, industry, and size to determine how much insurance you need. Often, businesses in risky industries need more than the $1 million/ $2 million policy. They can either increase the limits or take out umbrella insurance in addition to the standard liability insurance.
How Much Does Liability Insurance Cost?
The cost of insurance depends on your business’s size, the number of employees, the risk factors, the industry, and whether you’ve ever made a claim in the past. Typically, businesses pay a few hundred or thousand dollars a year. The average annual cost is $1,000-1,200, but very small companies might pay less, and businesses with many employees are likely to pay more.
You can keep your costs reasonable by choosing the best insurance company in your area. There are almost always several providers available, and not all of them offer the same value. Go through the options with your insurance agent and determine which policy suits your individual needs. Repeat this process once a year to make sure your policy is still a good fit for your business.
What Information Do I Need to Provide?
When applying for liability insurance, you’ll need to send the provider details about your company. You might be asked for the number of employees, your annual revenue, and your claims history.
Insurers also take into consideration where your business is located and what activities take place at your premises. If you have a claims history or you work in a high-risk industry, getting help from an insurance agent is crucial because some providers might not offer you coverage, and others might ask you to pay hundreds of dollars a month.
Are There Other Insurance Requirements?
While general liability isn’t legally required, several other insurance policies are. If you have employees, you’ll need to get workers’ compensation insurance, and all company cars or vans need to be covered under auto insurance.
Auto Insurance
Commercial auto insurance is a legal requirement in California. If you have a business vehicle, you’ll need to take out a policy with a minimum liability limit of $15,000 per person, $30,000 for bodily injuries, and $5,000 for property damage. Some companies need to take out even more insurance, depending on the type of vehicle they use.
Workers’ Compensation Insurance
Liability insurance only covers customers, business partners, and passers-by, but it doesn’t pay if an employee gets injured while at the office or shop. That’s why every business owner who hires others needs to take out workers’ compensation insurance. This covers the loss of income, medical expenses, and rehabilitation costs of employees who were injured at work. Workers’ compensation insurance is legally required in most states.
How Can I Find the Best Insurance Companies?
Almost every business needs several types of insurance. Sometimes, purchasing each policy from a separate provider is best, but often, buying all insurance policies from the same company works out cheaper. This is because insurers want to capture as much of the market as possible, so they give discounts to loyal customers.
It can be hard to determine which policies are necessary, which insurance company provides the most value for the money spent, and what the optimal coverage limit is. If you’d like to find out more about insurance, reach out to an agent at ISU Armac. We’ll provide you with quotes from leading insurers and help you to decide which one is the best for you.
Most small businesses need general liability insurance because it covers accidents at the business location, customers’ property damage, and problems related to advertisements. Some liability insurance policies also cover faulty products. Get in touch with us at ISU Armac to find out what policies are available in your area. We’ll help you find reasonably priced insurance that protects you from expensive lawsuits.
