Regardless of the type of business structure an entrepreneur chooses for his or her company, I always recommend obtaining general business liability insurance. Why? because comparably speaking, the low business liability insurance cost is worth the peace of mind.
What is liability insurance?
Most of have heard of car insurance. Typically, your auto insurance will have a liability clause in it. People obtain liability insurance as compensation in case a catastrophe happens, such as a car accident. Well, general liability insurance offers the similar protection, but for businesses.
Typically, when it comes to insurance, there are no winners (well, except for the insurance company). If you’re the victim, you’d rather not be the victim. If you’re the responsible party of the catastrophic event, you probably rather the event never occurred in the first place. Regardless of which side you are on during a lawsuit, liability insurance is there to help mitigate the damages and make the injured party as “whole” as possible. Despite not truly being a winner if it kicks in, the business liability insurance cost is typically far less than if you had to make yourself whole.
When does general liability insurance come into play?
General liability insurance pays out on behalf of a business in the case of a third-party lawsuit. By third-party, I mean anyone not employed by your business. Your company can be sued if someone is injured on your property, you or an employee causes damage to another property, your company slanders and/or commits other injuries.
The liability insurance you obtain for your business can be used to pay a variety of expenses related to the lawsuit. Those expenses can include lawyer fees, court costs, settlements, and/or judgments. Once you start adding up the possible fees, you can see how the business liability insurance cost balances the scale.
Risks of not obtaining insurance
Sole proprietors (SP) are most vulnerable to lawsuits. Not because SP run a riskier business than other business types. Rather, they are at risk because there is no real separation between their personal affairs and business affairs. As such, when a third-party sues an SP business, the third-party is really suing the owner. If the owner is forced to pay a settlement or judgment, those expenses come out of the owner’s personal funds. Liability insurance acts as a buffer between an owner’s personal funds and the lawsuit.
Owners of a limited liability company (LLC) may also find themselves vulnerable to lawsuits. Though there is a separation (or at least owners should have a separation) between business and personal affairs, some lawsuits can find aways around the limited liability protection. Again, liability insurance can form another barrier between an owner’s personal property and a lawsuit.
Corporations are completely separate entities from the employees and shareholders. However, it’s still important a corporation obtains insurance, as a costly lawsuit can lead a corporation to bankruptcy.
What does business liability insurance cost?
Insurance rates vary based upon industry, length of time in business, and even the history of the state you’re doing business to name a few. However, the business liability insurance cost for your company will be relatively inexpensive in comparison to the risks of having to outright pay for any settlements or judgments.
Where to get insurance?
Many of my clients as where they can get business insurance. I’m a firm believer in building relationships with your business partners. So, my first suggestion is to start with your current insurance company. Most business owners already have some type of insurance, whether it’s home, car, or rental insurance. If you’re able to stick with the same agent that’s been treating you well, you’re good to go. If they don’t offer business insurance, ask for a recommendation. Often times insurance agents are able to cross-refer to another company the think highly of.
My next suggestion is your bank. Often times banks dabble in other areas besides typical banking services. Again, you have an opportunity to build a partner relationship by adding one more item to their pot. If they don’t offer liability insurance, ask for a referral. 🙂
You can rinse and repeat this process with your other partners, such as your accountant or lawyer. You might also consider talking to other entrepreneurs you know and ask how their experience is with their insurance agent. Perhaps you do work for another company or vice versa that might have recommendations for you. Above all, don’t be afraid to ask. It’s all part of the networking game.
Who do you trust to give you an insurance recommendation?