Inside Small Business | Small Business & Home Business Marketing

Protecting Your Assets With Business Liability Insurance

Darrell Zahorsky, Author, Business Coach

Owning and operating a small business comes with plenty of responsibility and accountability. Even if you operate with the utmost care and provide the best quality and services, a client can perceive you did them wrong. Is your business protected with liability insurance? Learn what all successful business owners know about small business liability insurance.

Who Needs Business Liability Insurance?

Over 78% of all U.S. businesses are structured as a partnership or sole proprietorship, according to Bizstats.com. For the majority of small business owners, this form of ownership puts your business and personal liabilities at risk. Owning business liability insurance protects both your business and personal life from financial ruin.

A common misconception of a limited liability company (LLC) or an incorporated company is a business owner is protected from personal liability and liability insurance is not necessary. You can be personally liable if:

• You have signed a personal guarantee for a loan

• Personally you have injured someone

• You have acted in an irresponsible or illegal manner

• You do not operate your business as a separate entity

What is Business Liability Insurance?

Business liability insurance protects your small business in the event of a lawsuit for personal injury or property damages. It will usually cover the damages from a lawsuit along with the legal costs. Depending on your business needs, liability insurance can purchased in many forms.

Types of Business Liability Insurance

General Liability Insurance: This form of business liability insurance is the main coverage to protect your business from: injury claims, property damages, and advertising claims. General liability insurance also known as Commercial General Liability (CGL) may be the only type of business liability insurance you need depending on your business situation.

Professional Liability Insurance: Business owners providing services will need to consider having professional liability insurance known as errors and omissions. This coverage protects your business against malpractice, errors, negligence and omissions. Depending on your profession, it may be a legal requirement to carry such a policy. Doctors require coverage to practice in certain states. Technology consultants often need coverage in independent contractor work arrangements.

Product Liability Insurance: Small businesses selling or manufacturing products should be protected in the event of a person becoming injured as a result of using the product. The amount of coverage and the level of risk depends on your business type. A retailer of scrap book supplies will have far less risks than a wood stove builder.

5 Buying Tips for Small Business Liability Insurance

The costs of covering your business and yourself from a potential lawsuit are high. After a decade of intense competition among insurers and low premiums, the fallout from the Sept 11 terrorist attacks and the stock market have increased insurance costs while providing less coverage. Every business owner renewing an existing policy or starting a new policy needs to shop for the best business liability insurance rates and coverage. Here are 5 tips to shop the best rates:

Belong to an Association: Many trade associations and business groups such as the Chamber of Commerce provide members the benefit of purchasing insurance at group rates. Explore alternative trade associations for lower rates and a possible fit with your business.

Compare coverage: The extent of business liability coverage varies from insurer to insurer. Consider if and how much legal fees are covered. Review the policy details to know what is included and excluded in the coverage.

Assess your Industry’s Settlements: To gain a better perspective of the amount of coverage your small business needs, take a look at your industry. Review the recent legal actions and settlements in your field. Talk to peers and find their level of coverage. Using your peer feedback and industry research, determine the average legal costs and settlement to set your coverage limits.

Get the Package Deal: Purchasing separate types of business insurance from various insurers can quickly escalate your premiums. Depending on your business situation, it can make sense to buy a package of policies such as Business Owners Policy (BOP) to cover your business and save on rates. Be sure to understand the extent of coverage of the package. Not every type of insurance falls under a BOP. A business professional will often require a separate errors & omissions coverage.

Find a Specialist Broker: Your business and industry has unique needs and risks. To get the best available coverage and rates, consider working with an insurance broker who knows your business and has experience in your industry.

Protecting your small business from risks is the foundation of success. Take the necessary time to investigate your business liability insurance needs with an insurance representative, your industry association, and peers. It could be the most important decision to your company’s survival.
About the Author

Darrell Zahorsky is the Small Business Information Guide for About.com, part of The New York Times Company. He speaks, writes, blogs about small business and has a widely read newsletter. Darrell’s work has been recognized in numerous business publications and websites such as: Harvard Business School’s Working Knowledge, CEO Clubs of America, BusinessWeek’s Online Directory, Fortune Business Innovation Blog, Score, and numerous trade publications.

You can sign up for his newsletter here: http://sbinformation.about.com/gi/pages/mmail.htm

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Insuring Your Home Business

Courtesy of AllBusiness.com

If you operate a business from your home, it’s important that you obtain adequate insurance for it, just as if you had a separate office. Even a small home business deserves full protection against calamity. Most important, never rely exclusively on your normal homeowner’s policy. If you do, bad things can happen:

* After your computer is stolen, you may find out that it’s not covered by your homeowner’s policy because business property is excluded.

* After your house burns down, you may find that the fire coverage is void because you didn’t disclose your business use to the insurance company.

* After the UPS delivery person slips on your front porch and breaks their back, you may find you’re not covered for injuries associated with business deliveries.

It’s easy to avoid these nasty surprises. Sit down with your insurance agent and fully disclose your planned business operations. It’s relatively inexpensive to add riders to your homeowner’s policy to cover normal business risks. You may need separate policies for other business-related coverage.

When it comes to business equipment and furnishings, figure out how much it would cost for replacements after a fire, theft or other disaster. Don’t overlook things such as the specialized business software you run on your computer. Depending on the nature of your business, replacing equipment and furniture could run into many thousands of dollars. Ask your insurance agent what it takes to insure this valuable property, allowing for a good-sized deductible to keep costs down. Make sure that the coverage on equipment and furnishings is for the full replacement cost — not just the depreciated value, as can be the case in some homeowner’s policies.

Your homeowner’s policy may also not adequately protect you from liability to business visitors. Accidents — such as people getting hurt when they trip and fall — are more likely to happen at home than in a well-planned office building. Your homeowner’s policy probably protects you if you’re sued by a social guest or someone at your home for a non-business purpose — a florist’s truck driver delivering flowers or the meter reader who’s checking on gas usage. But it may not cover a business associate, employee, customer or delivery person who is injured on your property.

Some home-based businesses need special kinds of insurance. If you render professional services, look into professional liability insurance. If you manufacture, distribute or sell products that may hurt someone, think about products liability insurance. Also, if you have employees, you’ll need to provide workers’ compensation coverage.

If you do some business away from your home, be sure that your car insurance covers injuries that occur while you’re on business errands. And see about the extent of your general liability coverage if you should accidentally injure someone or damage their property while away from home on business. You may need a rider or special policy to cover this risk. The Insurance Information Institute reports that many insurance companies are offering such riders for less than $200.

Several insurance companies have developed special policies that cover both your home and a business run from your home. Typically, these policies cover your computer equipment and other business property — whether used in your house or elsewhere — and protect you from business liability lawsuits and loss of income. These policies can be less expensive than either adding riders to your home insurance or buying separate policies for home and business. But check the coverage carefully, as these policies tend to primarily address home offices and may not adequately insure you if, for example, you’re a small manufacturer or a wholesaler who stores inventory in the basement.

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Insurance FAQ: Policy Coverage & Business Interruptions

Courtesy of the Insurance Information Institute

What does a business owner’s policy cover?

Insurance companies selling business insurance offer policies that combine protection from all major property and liability risks in one package. (They also sell coverages separately.) One package purchased by small and mid-sized businesses is the businessowners policy (BOP). Package policies are created for businesses that generally face the same kind and degree of risk. Larger companies might purchase a commercial package policy or customize their policies to meet the special risks they face.

BOPs include:

1. Property insurance for buildings and contents owned by the company — there are two different forms, standard and special, which provides more comprehensive coverage.

2. Business interruption insurance, which covers the loss of income resulting from a fire or other catastrophe that disrupts the operation of the business. It can also include the extra expense of operating out of a temporary location.

3. Liability protection, which covers your company’s legal responsibility for the harm it may cause to others. This harm is a result of things that you and your employees do or fail to do in your business operations that may cause bodily injury or property damage due to defective products, faulty installations and errors in services provided.

BOPs do NOT cover professional liability, auto insurance, worker’s compensation or health and disability insurance. You’ll need separate insurance policies to cover professional services, vehicles and your employees.

Do I need business interruption insurance?

Business interruption insurance can be as vital to your survival as a business as fire insurance. Most people would never consider opening a business without buying insurance to cover damage due to fire and windstorms. But too many small business owners fail to think about how they would manage if a fire or other disaster damaged their business premises so that they were temporarily unusable. Business interruption coverage is not sold separately. It is added to a property insurance policy or included in a package policy.

A business that has to close down completely while the premises are being repaired may lose out to competitors. A quick resumption of business after a disaster is essential.

1. Business interruption insurance compensates you for lost income if your company has to vacate the premises due to disaster-related damage that is covered under your property insurance policy, such as a fire. Business interruption insurance covers the profits you would have earned, based on your financial records, had the disaster not occurred. The policy also covers operating expenses, like electricity, that continue even though business activities have come to a temporary halt.

2. Make sure the policy limits are sufficient to cover your company for more than a few days. After a major disaster, it can take more time than many people anticipate to get the business back on track. There is generally a 48-hour waiting period before business interruption coverage kicks in.

3. The price of the policy is related to the risk of a fire or other disaster damaging your premises. All other things being equal, the price would probably be higher for a restaurant than a real estate agency, for example, because of the greater risk of fire. Also, a real estate agency can more easily operate out of another location.

About the Insurance Information Institute
The mission of the Insurance Information Institute (I.I.I.) is to improve public understanding of insurance — what it does and how it works. For more information and resources on small business insurance, visit http://www.iii.org.

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