Liability insurance and property insurance provide different forms of protection, and both types of coverage are necessary to protect a small business.
How are liability and property insurance protections different?
Business liability insurance
Businesses typically carry multiple forms of liability insurance to protect against different kinds of lawsuits. Someone could sue your business for a variety of reasons, including personal injury, damage to their property, professional mistakes, and unfair hiring practices. The most popular is general liability insurance, which covers common lawsuits involving customers and other people outside your business.
Business property insurance
You likely already know the importance of commercial property insurance, also called business hazard insurance. Small businesses rely on this policy to safeguard their assets from fire, damage, and theft. Many landlords require you to carry commercial property coverage before they will rent office space.
Together, commercial property insurance and liability insurance help ensure that you are prepared for unforeseen events that could bring your business to a halt.
Liability insurance covers the cost of lawsuits
A “liability” is something that your business is legally responsible for. When you are held liable for causing someone a loss, you are responsible for making up the loss. For example, a customer could hold you responsible for medical bills if their injury happened at your storefront or office.
Liability is often determined as the result of a lawsuit or legal judgment. Business liability insurance helps you pay for expenses related to a liability claim, including legal defense for a frivolous claim.
Say an advertising agency rolls out a new social media campaign for a local restaurant. What happens if the restaurant’s sales don’t improve? It could sue the advertising firm, claiming it failed to fulfill its professional responsibilities.
The firm must now hire lawyers and work through potentially lengthy court proceedings – the final cost could be huge. Because small businesses don't have that kind of money, they invest in policies that offer liability coverage for:
- Lawyer's fees
- Settlements (when you resolve the dispute out of court for a set sum of money)
- Judgments (the damages a judge orders you to pay when you lose a lawsuit)
- Miscellaneous court and legal fees
You might need liability insurance to fulfill the terms of a lease or contract, or protect against lawsuits.
What types of business liability insurance coverage do you need?
You might need liability insurance to fulfill the terms of a lease or contract, or protect against lawsuits brought by employees or people outside your business. Here are some of the most common types of liability insurance:
General liability insurance
General liability insurance is often the first policy that a small business buys. A general liability policy covers the cost of common third-party lawsuits, such as a customer who sues your business over a bodily injury or property damage. It also covers lawsuits related to advertising injuries, such as copyright infringement and defamation lawsuits.
Professional liability insurance
Professional liability insurance, also called errors and omissions insurance (E&O), is crucial for consultants and others who provide advice or professional services, such as lawyers and doctors. This policy provides financial protection against clients who sue over a mistake or oversight, including missed deadlines.
Cyber insurance is important for businesses that handle sensitive data, such as credit card numbers. It helps pay expenses related to data breaches and cyberattacks. For example, it could cover the cost of notifying affected customers after a data breach exposes their personal information.
Employment practices liability insurance
Employment practices liability insurance (EPLI) provides financial protection against lawsuits brought by employees who sue your business over wrongful termination or another violation of employees' rights.
Commercial auto insurance
Commercial auto insurance covers the cost of accidents involving your business-owned vehicle. For example, it could help pay for medical expenses and legal bills if an employee driving your company car rear-ends another vehicle and someone is injured.
Employer's liability insurance
Employer's liability insurance can help pay for employee lawsuits related to work injuries. It's typically included in workers' compensation insurance.
Commercial umbrella insurance
Commercial umbrella insurance boosts coverage on your other liability policies. For example, if a claim exhausts the limits on your general liability policy, your umbrella policy would activate to cover costs.
Read more about which types of insurance you might need.
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Property insurance pays for repairs and physical loss
When you buy property insurance, your insurance company can insure your office space, equipment, computers, supplies, inventory, and other business personal property against loss or damage.
Property insurance covers damage that results from the specific events outlined in your policy. Common covered events include:
- Acts of vandalism
- Some weather events
What types of business property insurance do you need?
Commercial property insurance
Commercial property insurance isn't the only property policy that small businesses can buy. You may be able to find another type of property insurance that better fits your business.
Contractor's tools and equipment insurance
Carpenters might buy contractor's tools and equipment insurance to protect the tools of their trade. This is typically an inexpensive policy designed to protect newer tools and equipment from theft, vandalism, and work accidents.
Inland marine insurance
Another coverage option is inland marine insurance, which protects business property that's in transit or stored off-site.
Business interruption insurance
A property insurance policy covers your expenses up to your policy limit, and some policies provide coverage for income you lose if your business has to shut down after a covered event. This is often called business interruption insurance.
Unsure what type you need? Chat with a licensed insurance agent to find out more.
Save money on property insurance and liability insurance with a business owner's policy
As a small business owner, you might qualify for a lower insurance rate if you purchase a commercial property policy together with general liability coverage. This insurance bundle is called a business owner's policy (BOP), and offers a chance to save money on both policies.
Bundled insurance is a practical way to get your general liability and commercial property insurance, but you may face other risks that require different coverage.
How much does small business insurance cost?
Small businesses, especially low-risk ones, often qualify for discounted business insurance. Several factors affect policy costs, including:
- Industry and risk factors
- Coverage limits
- Number of employees
View Small Business Insurance Costs
You can customize property and liability insurance to match your business
When you buy commercial property insurance or liability insurance, you can choose the amount of coverage. For example, the policy's coverage limits should match the value of your business property or your risk of being sued.
In many cases, you can also choose your deductible, which is the amount you pay out of pocket before coverage begins on a claim. You can save money by opting for a higher deductible – just be sure to choose an amount you can afford, to ensure you can benefit from your insurance coverage when you need it.
With property insurance, you can also choose to insure your property for its actual cash value or its replacement value. The former is an item's current value; the latter is how much it would cost to buy a brand-new item to replace the one that was lost.
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June 30, 2022
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I am a seasoned insurance professional with extensive expertise in the field, having worked for several years in the industry. My knowledge spans across various types of insurance, including liability and property insurance. I have successfully navigated intricate policy details, assisted businesses in identifying their insurance needs, and provided comprehensive advice on risk management.
In the realm of liability and property insurance, the article you provided covers essential concepts for small businesses. Let's delve into these concepts:
General Liability Insurance:
- Covers common third-party lawsuits, such as bodily injury or property damage.
- Also includes coverage for advertising injuries like copyright infringement and defamation lawsuits.
Professional Liability Insurance (Errors and Omissions - E&O):
- Crucial for consultants, lawyers, doctors, and others providing professional services.
- Provides financial protection against client lawsuits resulting from mistakes or oversights.
- Important for businesses handling sensitive data.
- Helps pay expenses related to data breaches and cyberattacks.
Employment Practices Liability Insurance (EPLI):
- Protects against lawsuits brought by employees for wrongful termination or violation of rights.
Commercial Auto Insurance:
- Covers accidents involving business-owned vehicles.
- Pays for medical expenses and legal bills resulting from accidents.
Employer's Liability Insurance:
- Included in workers' compensation insurance.
- Helps pay for employee lawsuits related to work injuries.
Commercial Umbrella Insurance:
- Boosts coverage on other liability policies when their limits are exhausted.
Commercial Property Insurance:
- Covers office space, equipment, computers, supplies, inventory, and other business property against loss or damage.
Contractor's Tools and Equipment Insurance:
- Protects tools of the trade against theft, vandalism, and work accidents.
Inland Marine Insurance:
- Protects business property in transit or stored off-site.
Business Interruption Insurance:
- Covers expenses and provides coverage for lost income if the business has to shut down due to a covered event.
Business Owner's Policy (BOP):
- Combines commercial property and general liability coverage.
- Offers potential cost savings for small business owners.
Customization of Insurance:
- Businesses can customize coverage based on industry, risk factors, location, and the number of employees.
- The choice of coverage limits, deductibles, and the type of coverage (actual cash value or replacement value) can be tailored to match business needs.
- Small businesses may qualify for discounted insurance rates.
- Factors influencing costs include industry, risk factors, coverage limits, location, and the number of employees.
- Mentioned as a platform working with top-rated insurance providers to assist businesses in finding the right insurance at the best price.
In conclusion, the article provides a comprehensive overview of the importance of both liability and property insurance for small businesses, outlining various coverage options and considerations for customization. The emphasis on the importance of having both types of insurance to ensure comprehensive protection is a key takeaway.