As a business owner, you’re most likely focused on growth, profitability, and protecting yourself against losses. Liability insurance is a tool that can help protect your financial assets from unexpected incidents and injuries, if you’re using it the right way.
Here are 5 general liability mistakes to avoid in order to keep your business assets protected.
Mistake #1: My Business Isn’t Large (or Established) Enough to Need Liability Coverage
Your business is never too new or too small to benefit from the protection of liability coverage.
Imagine this. You’ve procured a great retail space for your new clothing boutique in a well-trafficked downtown location and you’re working hard in anticipation of your grand opening event in a week. As you’re receiving a delivery of merchandise, your delivery driver trips over a pile of display racks and is injured. You haven’t even opened your store or made a single sale and already you’re facing a liability claim that could cost you thousands in medical bills and possible litigation costs.
Maybe your business is small. You run an auto-detailing side-business, visiting a few clients at their homes on weekends to clean their vehicles. It brings in just enough supplemental income for your family to enjoy, but is nowhere near a full-time gig.
Unfortunately one weekend you accidentally put a client’s car into reverse instead of drive. Instead of driving the car out of the driveway you back into their closed garage door. The damage is extensive… and it’s going to be expensive.
It doesn’t matter if you’ve just opened shop or just have your own side-business for extra cash; your business is never too small or new to avoid the costs of an injury, property damage, or a lawsuit.
Commercial liability insurance protects your business against lawsuits and claims from:
- Third-party bodily injuries
- Third-party property damage
- Third-party personal injury (such as advertising injuries, copyright issues, or reputational harm from libel/ slander)
Don’t make the mistake of thinking liability protection only benefits businesses that are larger or more established.
Mistake #2: My Home-Based Business is Covered by My Homeowners Policy
If you’re operating a business out of your home, you’re not alone. You may be a freelance writer, graphic designer, piano teacher, real estate agent, wedding planner, construction professional, childcare provider or something entirely unrelated.
Home-based businesses make up about 53% of small businesses. And as many as 87% of home-based businesses are unaware they need additional insurance coverage. That’s because many business owners mistakenly believe that their homeowners insurance policy is protecting them as they operate out of the home.
Homeowners policies generally include liability restrictions for business-related activities. Which means bodily injury or property damage arising as a result of your business won’t be covered -- and you could be responsible for the costs of medical bills, repairs, and even lawsuits from a third-party claim.
Mistake #3: Assuming General Liability Covers Everything
Liability insurance for your business covers claims and lawsuits from third-party incidents, such as third-party injuries and property damage. But it won’t cover all potential risks to your business.
Liability insurance typically won’t cover:
- Damage to your business property
- Employee-related claims or disputes
- Auto accidents involving your business vehicles
- Cyber attacks and data breaches
- Professional mistakes and errors
- Stolen equipment or property
Liability offers protection against the most common risks that most businesses will face, but you may need additional policies to fully protect your business from the specific risks for your unique business size, speciality, and industry.
Mistake #4: Setting Deductibles Too High
There are many ways to get affordable liability insurance. Many business owners will choose a higher policy deductible in exchange for a lower monthly or annual policy premium. Before you choose a higher deductible, however, consider this:
If your deductible is so high that your business can’t afford to pay it, your insurance isn’t giving you the full financial protection that it’s intended to provide.
Choose a deductible amount that is equal to the cash or reserves you have available to cover it in the event of a claim.
Mistake #5: Having Unrealistic Claim Cost Expectations
Do you know what the average cost of a small business claim is? After analyzing five years of claim data from more than one million policies, Insurance Journal revealed some astonishing numbers.
The top 10 costliest small business claims include reputational harm, which includes libel, slander, or violation of privacy ($50,000); customer injury or damage ($30,000); and customer slip and falls ($20,000).
From this data, another number emerged: 40%. Four out of ten small businesses are likely to experience a liability or property claim in the next ten years.
Determining your liability insurance needs means understanding what you’re up against:
- Does your business have enough cash reserves to pay $20,000 - $50,000 for a claim?
- Have you carefully choosen your liability limits and deductible amounts?
- Do you have enough in reserves to pay for a claim in excess of your policy limits?
- Do you need additional umbrella coverage in the event of a claim that exceeds your policy limits?
General liability insurance can offer your business financial protection against many of the risks you face as you operate, no matter what your business industry, niche, or size. Understanding what liability covers, what it doesn’t, and avoiding these mistakes can help you better use this policy to ensure you’re adequately covered and ready for anything that may come your way.