Choosing the best liability insurance for small businesses involves researching several factors. Compare insurers’ market share rankings and customer satisfaction ratings from sources such as J.D. Power.
General liability insurance, also known as business insurance, protects companies from third-party claims for bodily injury, property damage and reputational harm. Many policies include product liability and errors and omissions coverage as add-on enhancements.
General Liability Insurance
The most common type of small business insurance is general liability, which covers third-party bodily injuries and property damage. It’s typically the first policy small businesses purchase, and it’s often required by landlords or in contracts with clients or vendors. In addition to protecting your financial stability against a costly lawsuit, this coverage can help pay for repairs and cleanup costs when customers or visitors become injured at your business. It also helps cover legal fees and other expenses if your business is sued over defamatory statements or copyright infringement.
You can purchase a standalone general liability policy from many providers, but NerdWallet recommends finding one that offers online quotes, paperless billing and autopay options to make it easier to manage your business insurance. You can also buy a business owner’s policy (BOP), which bundles general liability with commercial property insurance for a cost-saving option.
The Hartford is a good choice for BOPs, as it serves more than 1 million small businesses, including those that interact with the public frequently like restaurants and carpenters. The company’s BOPs start at $500 per year and include general liability, business interruption and commercial property insurance. Workers’ compensation and commercial auto insurance are other policies to consider, as they’re usually required in most states. Lastly, professional liability insurance, or errors and omissions (E&O) coverage, protects accountants, doctors, lawyers and other service professionals against claims of negligence.
Business Owner’s Policy (BOP)
A BOP combines liability and property insurance into one policy, usually targeting small businesses. It may include business interruption coverage, liquor liability, data breach coverage and more. You can also buy optional coverages, known as endorsements or riders, to create a more custom policy.
The main benefit of a BOP is that it offers a broad net of protection and typically costs less than buying the policies separately. It’s also a convenient option for small business owners who don’t want to deal with multiple premium payments each year or contract with different insurers for each type of coverage they need.
If you’re not insured, one costly lawsuit could bankrupt your business and put everything you own on the line, including your house, car and retirement savings. With proper liability and property insurance, the expenses you’ll face will be much lower, and you can focus on growing your business.
It’s important to talk to an independent agent and review your options before purchasing any type of insurance. Some insurers specialize in providing BOPs for small businesses, while others offer standalone commercial insurance policies. Some small business owners opt for a BOP because it’s required by their landlord when signing a commercial lease. The insurance company will take into account a variety of factors to determine eligibility, including the type of business, location, revenue and more.
Product Liability Insurance
Product liability insurance protects manufacturers, suppliers and distributors from lawsuits over injuries resulting from defective products. The types of damages covered by this kind of policy include medical expenses, property damage, legal fees and settlements. Businesses can purchase product liability coverage as part of a general business owners policy or as a standalone policy.
It’s important for small businesses to assess their risk levels and find the right type of policy for them. In some cases, it may make more sense to get a general business owner’s policy with a high limit for property and liability coverage instead of a standalone product liability insurance policy. However, each insurer offers different policies and has its own rules and requirements around reporting claims.
The cost of a policy can vary widely, depending on the industry and the products being sold or manufactured. Businesses that create or manufacture potentially dangerous products will often pay higher premiums than companies that produce safer goods. For example, a company that produces pharmaceuticals can face huge payouts if their product causes harm to customers.
Most small business owners (91%) get a general business owners policy that includes general and product liability insurance. These policies offer $1 million per-occurrence and $2 million aggregate limits for the duration of the policy. A large number of policyholders also choose to add workers compensation insurance, which helps cover the costs incurred when employees are injured on the job.
Errors and Omissions Insurance
Errors and omissions insurance, or professional liability insurance, is designed to protect businesses that provide services or advice against the risk of lawsuits. It covers costs related to legal fees and any settlement payments. In addition, errors and omissions policies can cover damages from a claim that arises from the business providing services or advice that falls short of the standard of care expected by clients.
The type of claims that fall under this policy are wide-ranging and depend on the industry, but examples include a home inspector not noticing a crack in a foundation, a contractor making a miscalculation on a construction project, an attorney failing to correctly identify a client’s property boundaries, or a copyright infringement by a freelance writer. While it’s important for every business to carry general and product liability insurance, if your business provides services to people, errors and omissions protection is a must.
Like other commercial insurance policies, the cost of an E&O policy can vary widely. Coverage limits and deductibles are the main factors that influence the premium for this policy. Next tailors all of its policies, including E&O, based on the unique characteristics of each business type and location. Typically, the higher the coverage limit, the greater the premium. However, many small businesses find that their insurance rates are relatively affordable for this essential coverage.
