Whether you are just starting out or have a few years of business under your belt, you know how important it is to keep costs in line. After all, every dollar you don’t spend goes to your bottom line and helps to make your business more profitable. So it may seem wise to cut spending wherever you can. But investing in your business over the long term is smart, and protecting your business with liability insurance can save you a lot of money in the long run.
Understanding the value of small business insurance
Business insurance protects you in the case of an unforeseen claim or lawsuit. For a low monthly premium, you could protect your business against a large judgment or settlement than could effectively ruin your company.
To make an informed decision about business insurance, you’ll need to understand what is covered. There are two major kinds of business liability insurance.
General liability Insurance
General liability insurance covers claims of bodily injury, personal injury or property damage to a third party. So, if someone slips and falls in your store or office and hurts themselves, you could be liable for their medical expenses which can include lost wages if they cannot work while they recover from their injuries. Even if the person who is injured has medical insurance, you could be responsible for their medical costs, which could easily run into the tens of thousands of dollars.
Likewise, if a client’s property is damaged while they are in your office or you are in their home or office for business, you could be liable for the damage. A general liability policy could protect you if, for example, you break an antique lamp while measuring for curtains in the home of a client of your interior design business.
Personal injury is also covered under a general liability policy. Comprised of slander and libel, personal injury results when you or an employee says or writes that is negative and untrue about another person, and it causes them harm. For example, if one of your employees tells customers that a competitor to your seafood market sold fish that made people sick, you could be sued for slander. You could be liable for damages that include loss of business and damage to your competitor’s reputation.
Professional Liability Insurance
Professional liability insurance covers claims or lawsuits related to your performance in your business. You can be sued for something you did wrong (an error) or for something you failed to do (an omission), even if you didn’t make a mistake. A professional liability policy can cover a settlement or judgment, and can also cover your costs to defend yourself, which can be significant. If you are sued and have to go to court, you can incur costs related to your defense and lost business, even if you are found not to be at fault.
Suppose you have a consulting firm, and you advise a client to cut some jobs in order to reduce costs and streamline operations. Your recommendation projects that your client will increase profits by 5% over the previous year if your recommendations are followed. The client lays off several long time employees, but doesn’t offer a severance package, leading one employee to go public with the terms of their departure, which reflects poorly on the company and causes a decline in sales. The company blames you, and sues you for the lost business and damage to their reputation. It costs you over $10,000 to defend yourself, even though you are found not to be liable for the decline in sales.
Other kinds of small business insurance
If you have employees, you’re required to have worker’s compensation insurance. But you should have liability insurance as well, which could protect you from a discrimination claim from an employee, or from a claim resulting from something your employee did.
Business Owner’s Policy
Business owner’s insurance protects the equipment you need to do your job. Many business owners think their homeowner’s or renters insurance covers business equipment but it doesn’t. If the loss or damage of your equipment could put you out of business, you’ll want to protect yourself with a Business Owner’s Policy.
Business insurance can be purchased for as little as $22.50 a month, and can be tailored to your specific type of business and the unique risks you face. When you consider that a lawsuit could cost you everything you’ve worked so hard to build, insurance seems like a small price to pay