Michael Lodge, NCPM, CRTP: When we are starting a business or running on, we often get confused on the types of insurance a business should carry. This blog goes through the various explanation on what insurance is in terms of covering a business. We all should know this if we are in business.
Most small businesses need some kind of liability insurance. But before we get into the different types of liability insurance available, what does ‘liability’ actually mean?
‘Liability’ is a legal word. Put simply it means ‘responsibility’. If someone claims you’re liable for something, it’s a fancy way of saying it’s down to you.
What is liability insurance?
Generally speaking, liability insurance protects you from the cost of legal claims. If someone says something’s your fault and you owe them money, liability insurance can take care of the costs. Including your legal fees, and compensation, if it turns out you’re at fault.
Unfortunately, there isn’t a one-size-fits-all kind of liability policy. Instead, there are several, each one designed to cover different kinds of claims. There are policies to protect you from the cost of claims:
• You or an employee damaged someone’s property or caused them injury
• Your work was faulty, or you made a mistake
• You lost someone’s confidential data in a breach.
Now, you may need one liability policy. Or you may need two or three. It really depends on the kind of industry you’re in and how you run your business.
To help you work out which ones you need, here’s a guide to the three most common policies.
General liability insurance
If clients or suppliers visit with you, or you visit with them, general liability insurance is a must-have. Even if you run your business from home.
It protects you from the cost of claims you accidentally damaged someone’s property or caused them injury. And covers slander and libel claims too.
Imagine a supplier trips over a loose cable delivering a package and breaks an ankle. Without general liability insurance, you’ll have to pay medical bills and legal costs if they sue.
Or perhaps you brush past a client’s antique vase and it topples and smashes on their hardwood floor. If you don’t have a general liability policy, you’ll have to find the cash to replace it.
And what if one of your employees bad-mouths a customer and it gets back to them? You could be sued for personal injury. And if the case doesn’t go your way you won’t just have legal fees to pay, there’ll be compensation due too.
If you have general liability insurance and someone makes a claim for injury to themselves or their property, your policy can cover:
• medical bills and hospital treatment
• repairs or replacement costs
• legal fees and compensation.
Professional liability insurance (errors and omissions)
Do clients pay you for your advice or your services? Then you need professional liability insurance (or errors and omissions as it’s also known).
Without it, if a client claims you made a mistake, or your work was faulty, you’ll have to cover the costs of a legal suit.
You could be a carpenter who gets sued because a customer claims the closet you made isn’t flush. Or a consultant whose client claims you gave the wrong advice and lost them business. Or…you may not have made a mistake at all.
Thing is, if you charge for your advice or services, clients can sue you even if you did nothing wrong.
The best way to protect yourself is with professional liability insurance. Because even if there are no grounds for a claim, it can pay for:
• an attorney to defend you
• your legal fees
• compensation if you’re at fault.
Cyber liability insurance
Do you send or receive wire transfer payments? Do you store personal data, like health information or credit card numbers? Do you store business-critical information on your computer? Things like client contracts, designs and plans?
If you answered ‘yes’ to any of these questions, you need cyber liability insurance.
And if you’re a small business owner with employees, that’s two more good reasons to get coverage.
Major data breaches may hit the headlines. What’s not reported is that over half of all cyber-attacks are aimed at small businesses. Why? Because with less cash to spare for tough cyber defenses, you’re an easy target.
And the more employees you have, the more likely it is someone will make a mistake. Human error accounts for over ¾ of cyber security incidents. Don’t believe us? Take a look at some of the claims made recently.
Cyber insurance covers the damage cybercriminals can do to your business. Whether it’s caused by a data breach, malware, or phishing.
If you get hacked, it can take care of the costs, including:
• paying fines
• your legal expenses
• replacing lost income if the attack stops you trading.
What’s more, you’ll get the tools and technical support to recover from an attack. So you’re back on your feet, doing business again in no time.
What other insurance do business owners need?
Liability insurance isn’t the only type of coverage available for business owners. If you have any employees, for example, you’ll need workers’ compensation insurance. It’s required in most states.