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An Explanation of Liability Coverage

General Liability Coverage

Every small business needs general liability (also called GL) insurance. This type of small business insurance protects your business against the numerous common risks related to business operations. For example, if a customer falls on the business premises, general liability insurance covers a lawsuit by that customer for medical expenses or other perceived damages. Another example includes claims that an employee or employees did something that caused injury or damaged property. In this case, GL coverage protects the small business from the employees' mistakes.

General liability coverage also takes care of more than just property damage or physical injury. It covers various other types of risks as well, such as any accusations of false advertising, invasion of privacy, or slander or any type of defamation.

It pays for injuries or damages caused by the business or its employees, as well as any costs associated with the business' legal defense. The threat of litigation is a growing one in current trends and a good general liability policy is a must to cover these various threats to small business.

Other Types of Liability Insurance

Depending on the type of small business, a general liability policy may not cover the specific risks the business may face. For example, a business that provides services risk of making major mistakes that may cause serious issues for its customers. If physicians make mistakes when providing medical services, they may accidentally cause serious injury or even death to patients. Legal mistakes made by lawyers and accountants may lead to severe legal or monetary penalties. Negligence by contractors may create delays that impact the financial viability of a project. The majority of general liability policies do not cover businesses on issues occurring in relation to any of the previously listed situations. There is, however, another type of insurance that will: professional liability insurance.

For medical professionals, this coverage comes in the form of malpractice insurance. Other professionals may know it as errors and omissions insurance. Similarly to general liability insurance, all of these types of professional liability insurance cover mistakes as well as legal costs.

If the small business deals in manufacturing products, it may consider product liability insurance, which protects the business if its products cause property damage or injury.

Legal litigations between employees and businesses resulting from allegations of sexual harassment, discrimination, and wrongful termination are increasing. These types of accusations are hard to defend against. These types of lawsuits take large amounts of time and incur large fees for the business. Employment practices liability insurance is the type of insurance necessary to cover small businesses in these situations.
It is imperative that small businesses invest in coverage for both general liability and the specific types of professional or product liability that fit each business' specific needs.

Special Considerations for Liability Coverage for Home-Based Businesses

If a small business is also one that is considered a "home-based business", it may not currently have the types of insurance it requires. There are approximately 18 million home-based businesses in the U.S. Around 60% of these do not have enough insurance coverage, according to the Independent Insurance Agents of America Inc. (IIAA). These home-based entrepreneurs often believe they are covered by homeowners insurance, but homeowner's policies only allow about $2,500 for loss of business property and do not cover any losses that may occur outside the home. These policies may also exclude liability coverage for any business-related activities.

Assess the needs of the home-based business by asking lots of questions in order to determine the type of insurance needed by the business, as well as how much coverage is needed. Include questions based on the inventory and equipment in the home and the cost of replacing them. Consider how many customers will enter the home and what may happen to the business if unforeseen events caused the business owner to temporarily be forced out of the home. A home-based business owner, similarly to most business owners, should have a business owner's policy to cover liability and property damage, but, unlike other business owners, may need a different type of coverage to supplement the BOP.

A home office policy may be an option for the home-based business. This policy is a combination of homeowners and small business insurance and eliminates any duplicate coverage or coverage gaps. This may be a better choice for a home-based business with only a handful of visitors weekly and one that also has expensive computer equipment. It covers general business liability, as well as, income loss and continuous expenses such as payroll for a period of around one year if the home-based business must halt operations due to damage to the home. Other coverage includes accounts receivable, record loss, fire, theft, minimum off-site business property, and personal liability.


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