Thursday, August 9, 2007

5 Buying Tips for Small Business Liability Insurance

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.
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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.