As a small-business owner, you've done a lot more to achieve financial success than many people do. You work hard for every dollar of revenue that comes into your business. Your livelihood depends on your ability to find and retain a loyal customer base. And you may well have nearly all of your financial resources tied up in your business, with dire consequences if you fail.
Once you've created a successful small business, you'll want to ensure that your business is protected from various kinds of risk. One way is to buy a business insurance policy. Many major insurance companies, including AIG (NYSE:AIG), CNA Financial (NYSE:CNA), and St. Paul Travelers (NYSE:STA), offer business insurance, either directly or through brokers. This article takes a look at the various types of business insurance and whether they make sense for you.
General liability coverage
Nearly every small business can benefit from general liability or GL insurance, which protects your business against a wide variety of common risks related to your business operation. For instance, if one of your customers slips and falls on your business premises, GL insurance covers you if that customer sues you for medical costs or other damages. What's more, if someone claims that your employees did something wrong that caused injury or property damage, then your GL coverage can protect you from their mistakes.
General liability coverage also goes beyond just physical injuries and property damage. It can cover several other types of risks, including allegations of misleading or false advertising, slander or other defamatory remarks, and invasion of privacy. In addition to paying for injuries or damages you or your employees have caused, it will also cover the costs of defending allegations in a lawsuit, including fees for attorneys, costs related to investigating allegations and legal discovery, and court costs. With the ever-present threat of litigation if something goes wrong on your premises or worksite, GL insurance can save you a lot of hassle and expense.
Other types of liability insurance
Depending on the type of business you run, however, a GL policy may not cover you against all of the risks you face as a business owner. For instance, businesses that primarily provide services to customers run the risk of making mistakes that can cause those customers serious problems. Errors that doctors make when providing medical services can inadvertently cause death or serious injury to their patients. Mistakes by lawyers and accountants can lead to penalties and other monetary damages, as well as potentially lost opportunities that can harm clients and their business interests. Negligence by architects or general contractors can create costly delays that jeopardize a project's financial viability. Most GL policies won't protect you and your business from problems resulting from these situations. The good news is that another type of insurance -- professional liability insurance -- will.
For doctors and other medical professionals, insurance that offers protection against mistakes they make as a service provider is also known as malpractice insurance. For other professionals, it's sometimes called errors and omissions insurance. As with GL insurance, professional liability insurance covers not only the monetary damages resulting from mistakes but also the costs of litigation.
Similarly, if your business focuses on manufacturing products rather than providing services, you may want to consider product liability insurance, which will protect you if something goes wrong with your products and causes injury or property damage.
Finally, an increasing concern of small businesses is the rising rate of litigation between businesses and their employees. Allegations of discrimination, sexual harassment, and wrongful termination can be extremely difficult to defend, take up huge amounts of time, and involve costly fees for specialists in the area. Because employees who raise these claims often stop working, the business will find itself short-staffed and not well prepared to weather a storm. Employment practices liability insurance provides coverage for small business in these situations.
Insurance coverage for both general liability and the specific types of professional or product liability that your business needs is an essential component of protecting your company from claims that can destroy your livelihood. However, liability insurance is only one aspect of a complete insurance plan for the typical small business. The second part of this article looks at other types of insurance that many businesses use in managing specific risks.
Related articles:
- Starting a Small Business
- Taxes and Your New Business
- Foolish Advice on Business Liability Insurance
For more information on personal-finance and investing basics, take a look at the Fool's personal-finance service, Motley Fool Green Light. It's tailor-made for Fools who aim to take control of their financial destiny. Try it out free for 30 days.
Fool contributor Dan Caplinger has been paging through dozens of pages of insurance documents for a favorite charity. He doesn't own shares of the companies mentioned in this article. The Fool's disclosure policy doesn't need risk management.
