What Is Liability Insurance and Which Policies Does My Business Need?

Back to News

Once you've acknowledged the need to protect your startup with business insurance, the next and probably more complicated part is determining which insurance policies you need and what amount of coverage to pay for each.

When it comes to business insurance coverage—especially liability policies—there are no one-size-fits-all policies. You'll need to identify your business's unique liabilities and exposures and create an insurance safety net that's ideal for your business type and industry.

The Liability Label on Insurance Policies

A liability insurance policy can be your safeguard against financial loss if you're held liable for injuries and damages to other people or their property. Should a third-party successfully file a liability claim against you in court, the insurance policy may cover your legal fees and settlements.

Liability insurance differs from other policies in that it only pays out compensation to third parties, not you, the insured. Keep in mind that it may be illegal to operate a business without certain liability insurance types—it all depends on your state's laws and business needs.

So, what's the most cost-effective way to get maximum insurance protection for your employees and company assets? To find the right solutions for your business, you first need to understand the different liability insurance policy types available to your business, including (but not limited to):

● General liability insurance

● Professional liability insurance

● Management liability insurance

● Commercial auto liability insurance

● Cyber liability insurance

● Commercial umbrella insurance

General Liability Insurance

In today's litigious business world, general liability insurance can shield you from claims of bodily injury, property damage, and advertising injury. For example, if your employee damages a client's property while performing a service at their home, general liability insurance would cover the property damage expenses and associated legal expenses should the client take you to court.

The wide range of risks this policy covers, such as trip, slip, and fall, are common to most small business types, regardless of industry. From restaurants to architectural firms, all business types benefit from this form of liability insurance.

Professional Liability Insurance

Professional liability insurance gives you protection against negligence claims made by your clients. It comes to the rescue when a client accuses your business of misleading them or making a professional mistake that physically hurt them or cost them financially.

Say, as a doctor, you misdiagnosed your patient. That's a potential medical malpractice or negligence claim that your professional liability insurance would typically cover.

Another example could be if you own a tattoo or body piercing parlor and a customer claims injury, infection, or disease as a result of the piercing (see here for things to know before your daith piercing). Professional liability insurance would protect the specialist from lawsuits that might arise from such complaints.

Medical practitioners, lawyers, accountants, client contractors, and other professionals often face these types of claims. If your business provides any form of service, you'll want to consider a professional liability insurance policy.

Management Liability Insurance

Management liability insurance can shield your company's director, managers, board members, or executive officers from a wide variety of exposures. Typically, management liability insurance policies include the following forms of liability protection:

● Directors and officers (D&O) liability

● Employment practices (EPL) liability

● Fiduciary liability

● Special crimes insurance, covering exposure to kidnapping, ransom, and extortion

Commercial Auto Liability Insurance

Your company cars pose a significant financial risk that you can cover with commercial auto liability insurance. If you or your driver is liable for automobile accident injuries and damages to others, the policy may pay for all costs arising from the liability. Not only can it protect your business assets, but it may also take care of your legal fees if sued.

You'll want to make business auto liability insurance a top priority since most states won't let you operate a fleet without it, whether you own, lease, or rent the cars.

Cyber Liability Insurance

If a cyberattack successfully infiltrates your network and breaches customer data, its victims could sue you, and the government might penalize you for lack of proper protection. You can avoid financial loss in both cases if you have cyber liability insurance.

Typically, cyber liability insurance covers denial of service attacks that could lead to clients suing you for business service interruptions. It may also help settle data breach claims by affected employees or customers.

Do all businesses need cyber liability insurance? It's worth considering if you electronically store, process, or transmit third-party data, regardless of your industry and your business size.

Commercial Umbrella Insurance

If your liabilities exceed your basic policy limit in that area, commercial umbrella insurance may pay out the difference. For example, suppose your general liability can't fully compensate for a customer's slip and fall injuries on your business premises. In that case, a commercial umbrella cover could close the coverage gap, and you wouldn't have to pay anything out of pocket.

Protect Your Business Assets With the Right Liability Insurance Policies

To fully shield your business from third-party liability claims and lawsuits, you need to carry the right type and amount of insurance coverage. Which forms of liability insurance your business should ideally have depends on your line of work, the assets you have on the line, your business's size and profile, and more. To ensure you have comprehensive coverage, talk to your lawyer or insurance agent about the unique exposures your business faces daily.