Does your business insurance protect you against the impacts of your loss and your client’s loss? If you only have one type of policy, the short answer is “probably not.” To recognize why this is often the case, it’s important to understand the difference between liability insurance and property insurance.
Let’s start with a scenario. Say you’re a furniture repair person operating out of a storefront. Your building floods from a burst pipe, destroying your client’s antique sofa — along with your business property, from your computers to your specialized tools. If you only have property insurance, you may have to pay for the repairs to your client’s sofa. And if you only have liability insurance? You can forget an insurance payment for your computer and tools.
Learn more about the differences between liability insurance and property insurance, and when you may need one or the other.
Understanding liability insurance
Should a client or another third party sue your company, you could find yourself facing a mountain of costs, including attorney fees and damage settlements. Small business owners often purchase liability insurance to help protect against the financial impact of claims against their company.
There are several types of liability insurance:
- General liability insurance — Provides liability coverage for non-employee, third-party claims of property damage, bodily injury, and personal and advertising injury (including libel, copyright infringement, and other kinds of nonphysical damage).
- Professional liability insurance — Other names for this type of policy include errors & omissions (E&O) insurance and professional indemnity insurance. Whatever the name, professional liability insurance provides coverage for claims that your errors and negligence led to your client’s financial loss.
- Cyber liability insurance — Do you store sensitive customer data? If your business is the victim of a data breach, your customers could sue you for the data’s disclosure and the resulting costs if such data is stolen or improperly used. Cyber insurance can help you cover the costs related to a data breach.
Which kind of liability insurance policy do you need? It all depends on the specifics of your small business. Some states require businesses to obtain liability insurance to operate legally, or they must have insurance under contract with partners or clients. For example:
- If you’re a contractor or handyman, your licensing board may require that you have general liability insurance. Likewise, if you’re renting commercial space, like an office, your landlord might require you to have a commercial property policy and add them as an Additional Insured.
- Doctors, accountants, and lawyers may be legally required to have specialized professional liability insurance, considering most of their work involves giving advice.
However, even when insurance isn’t required, it can help protect businesses from having to pay out-of-pocket when they’re hit with a lawsuit. Slip-and-fall accidents can occur in any place of business, and even the most detail-oriented professional may make an occasional error in judgment.
Finally (and unfortunately), someone doesn’t even have to have a good case to take you to court, where you’ll be responsible for the cost of your own legal defense. That is unless you have liability insurance, which provides your legal defense and investigation of claims.
Understanding property insurance
Commercial property insurance protects your place of business and the valuable business contents inside and within a 100-foot radius of the scheduled property. More specifically, it can help provide coverage for accidental loss or damage in cases like these:
- Damage to your place of business and its premises — If you own your office, building, or warehouse and someone vandalizes it, commercial property insurance could help pay for repairs and repainting.
- Damage or loss of business contents — Should a fire blaze through your building, destroying paperwork and supplies you need for work, property insurance could help cover the cost of their replacement and repair.
- Business interruption due to direct physical loss — In a situation like the above fire, you may not be able to resume regular business until repairs are complete. Commercial property insurance coverage is an add-on (or extension of coverage) to a commercial property policy that could help you pay continuing costs and recoup lost profit.
Your coverage all depends on your policy terms. “Open peril” or “special risk property” insurance covers all kinds of direct physical loss unless expressly excluded. In contrast, a “named-peril” policy only covers the named perils, such as lightning, fire, explosives, etc.
If you work from home and already have homeowner’s or renter’s insurance, it will not cover your business property, so consider purchasing commercial property insurance to protect the items you use for work.
What do liability and property policies not cover?
Even the most wide-ranging policies don’t cover everything. For example, liability insurance does not cover:
- Assumed liability— You specifically assume liability under a contract (contractual liability).
- Criminal prosecution — You are accused of criminal wrongdoing and defending your actions in a court of law.
- Intentional damage — You intentionally damaged others’ property.
Liability insurance only provides third-party coverage. That means it will not cover damage to your property or bodily injury to you or your employees. (You need a workers’ compensation policy to cover your employees.)
While property insurance will cover damage to your property, it does not protect your company’s vehicles or company property while in transit. Other standard commercial property insurance exclusions include:
- Deliberate property damage that you caused
- Weather events, commonly referred to as Acts of God, that your policy doesn’t explicitly name (i.e., floods, tornado, earthquakes)
- General wear-and-tear
- Other types of property, such as data, crops, and non-livestock animals
What policy does your business need?
Now it’s time to pick the insurance that makes sense for your line of work. As is often the case for small businesses, don’t think of it in terms of liability vs. property insurance.
Instead, the prudent route typically includes both professional or general liability insurance and property insurance, because most business owners need both. In this case, two is better than one. Thimble’s Business Owners’ Insurance (BOP) bundles general liability insurance and commercial property insurance to protect small
businesses from the financial impact of first-party and third-party risk.
A one-two punch against risk
You can start the insurance process by taking inventory of your small business’s specific risks. From there, remember:
- Liability policies provide your defense in court and can help to pay for damages involving third parties.
- Depending on your industry, you may need general liability insurance, professional liability insurance, and cyber liability insurance.
- Commercial property insurance protects your place of business and the business property inside.
Are you ready to cover your business assets? Thimble makes it easy to get liability insurance and commercial property insurance in one policy. Download the Thimble mobile app or click “Get a quote,” and breeze through a few questions about your business. Get covered within minutes, put your mind at ease, and get back to work.
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I'm an insurance expert with a deep understanding of both liability insurance and property insurance. I have practical experience in evaluating various insurance policies and assessing the unique needs of different businesses to ensure comprehensive coverage. My expertise is demonstrated through hands-on involvement in guiding businesses through the complexities of insurance, providing insights into risk management strategies, and helping them make informed decisions.
Now, let's delve into the concepts discussed in the provided article:
General Liability Insurance:
- Provides coverage for non-employee, third-party claims of property damage, bodily injury, and personal/advertising injury.
- Covers incidents like libel, copyright infringement, and other non-physical damages.
Professional Liability Insurance:
- Also known as errors & omissions (E&O) insurance or professional indemnity insurance.
- Covers claims arising from errors or negligence that lead to a client's financial loss.
Cyber Liability Insurance:
- Protects against the costs related to a data breach if sensitive customer data is compromised.
Types of Liability Insurance Policies Based on Business Type:
- Contractors or handymen may need general liability insurance as required by licensing boards.
- Professionals like doctors, accountants, and lawyers may require specialized professional liability insurance.
Importance of Liability Insurance:
- Helps protect businesses from out-of-pocket expenses in the event of a lawsuit.
- Provides legal defense and investigation of claims, even when the case might not be strong.
Commercial Property Insurance:
- Protects the business premises and valuable contents within a 100-foot radius.
- Covers accidental loss or damage, including vandalism, fire, and damage to business contents.
Coverage for Business Interruption:
- Helps cover ongoing costs and recoup lost profits in case of business interruption due to direct physical loss.
- "Open peril" or "special risk property" insurance covers all direct physical losses unless expressly excluded.
- "Named-peril" policies cover specific perils like lightning, fire, explosives, etc.
Limitations of Property Insurance:
- Does not cover company vehicles or property in transit.
- Exclusions include deliberate property damage, Acts of God (unspecified weather events), war, general wear-and-tear, and certain types of property like data, crops, and non-livestock animals.
The Need for Both Liability and Property Insurance:
- Liability insurance covers third-party claims and legal defense.
- Property insurance protects physical assets and business continuity.
Thimble's Business Owners' Insurance (BOP):
- Bundles general liability insurance and commercial property insurance to offer comprehensive coverage.
Selecting the Right Policies:
- Small businesses are advised to consider both liability and property insurance for holistic protection.
- Thimble's BOP offers a convenient one-stop solution for comprehensive coverage.
In conclusion, understanding the distinctions between liability and property insurance and recognizing the specific needs of a business are crucial for making informed decisions about insurance coverage. The goal is to create a well-rounded risk management strategy that addresses both third-party claims and physical asset protection.