Business liability insurance protects the financial interests of companies and business owners in the event that they face formal lawsuits or any third-party claims. Such policies cover any direct financial liabilities incurred, as well as any legal defense expenses. The three main types of business liability insurance are:
Small business owners put their personal finances at risk in the event of a business-related lawsuit. Partnerships and sole proprietorships are particularly vulnerable to exorbitant expenses, and are consequently in the greatest need of this type of insurance coverage. Even under the structure of a limited liability corporation (LLC), an owner may still be exposed to personal risk.
Business liability insurance protects a company’s assets and pays for legal obligations, such as medical costs incurred by a customer who gets hurt on store property, as well as any on-the-job injuries sustained by employees. Liability insurance also covers the cost of a company's legal defense, while paying for any settlement offerings or awards a company is mandated to pay as per legal judgments leveled against them. These costs may include compensatory damages, non-monetary losses suffered by the injured party, and punitive damages.
For businesses that rent the commercial real estate property in which they operate, general liability insurance protects against liability from damage they may suffer due to fire, mold, floods, or other physical catastrophes.
Lastly, business liability insurance also covers claims of false or misleading advertising, including libel, slander, and copyright infringement.
Businesses that tend to carry higher risks than traditional liability insurance covers can augment their coverage limits with excess of loss reinsurance or umbrella insurance.
Coverage costs are generally determined by a business' perceived risk levels. A building contractor who deals with heavy equipment and dangerous machinery such as cranes and forklifts, for example, will pay more for coverage than an accountant who sits safely behind a desk.
Businesses that fall into the lower risk category may want to consider a business owner’s policy (BOP), which combines general liability and property insurance at a more cost-effective rate. Any new or additional business liability insurance policies should contain exclusions clauses to avoid duplication of coverage from competing insurance providers, thereby minimizing costs.
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