Understanding Your Business Liability & How to Pick the Right Coverage

Starting and running a business is challenging enough. Add on the fact you also need to worry about making sure you have the right coverage to protect your business, and it can easily become overwhelming.

There are many insurance policies in the marketplace – different types of coverage at varying price points.

How are you supposed to know what you need? Are you properly covered? How do you know you’re not paying for something you don’t need?

We get it. It’s confusing.

So, let’s make things a bit easier by giving you a quick description of some of the most common types of business insurance. Plus tips you can use to determine how much coverage you need so you don’t end up paying for something you don’t need.

Understanding Your Business Liabilities

Before you can start considering your options for business insurance, you need to start by assessing your liabilities. That means taking a good look at the assets your business has and how you can protect the value of those assets.

Property Insurance

Do you rent or own the building your business is in?

If you own a brick-and-mortar store or an office where you do business, you have commercial real estate.

That piece of real estate is often your company’s most valuable asset. Whether you rent or own the building, you’ll need enough property insurance to protect its value.

Property insurance can also protect almost everything inside the building. Standard coverage tends to include your equipment, inventory, and your furniture.

Supplemental Insurance Some Should Consider

Another consideration with property insurance is business interruption/loss of income insurance. Water damage and fire damage require renovations to repair the building. You generally can’t run your business while renovating and replacing lost inventory. And you can’t make money if you can’t run your business – unless you have property insurance.

But business interruption insurance is not automatically included with every property insurance policy. Don’t assume you’re fully covered just because you have property insurance.

How Much Property Insurance Do You Need?

The role of insurance is to cover the costs of replacing anything that gets stolen or damaged. That means the amount of insurance you need depends on the value of whatever it is you’re insuring.

For example, let’s say your office has a fire and the cost of renovations is $100,000, but your policy is only for $10,000. You’ll have to pay the remaining $90,000 out of your own pocket.

Make sure you have the right coverage limits and are insured to the proper value.

General Liability Insurance

General liability insurance is also known as business liability insurance. It can protect you in the event someone gets hurt in your office or store and you are sued as a result.

Anyone who has had to hire an attorney can tell you how incredibly expensive they can be. General liability insurance includes a ‘duty to defend’ you in the event of a covered claim.

If someone’s property is damaged while in your store or office, you could get stuck with the bill for replacing it. If you have general liability insurance, you won’t have to pay those costs out of your own pocket.

But don’t make the mistake of thinking the name “general” means this is the only coverage you need.

There are a lot of potential disasters this type of insurance does not cover. We’ll go over some of those exceptions in the following sections.

Business Auto Insurance

If you need a car or truck for business purposes, you should consider business auto insurance. As with property insurance, you’ll need business auto insurance regardless of whether you rent or own the vehicles you’re using.

Or maybe you use your personal car or truck for business purposes. Then you should still consider business auto insurance to cover your vehicle.

There’s always a chance the vehicle could get damaged while on the job. And if that happens, personal car insurance won’t cover the damages.

Workers’ Compensation Insurance

Worker’s compensation insurance is an absolute must and is in place to protect your employees. Including unpaid volunteers and family members who help perform services for your business.

It is legally required that your business maintains this policy. You can be subject to steep penalties without it unless you meet one of the following exceptions:

  • The business is owned by no more than two people
  • You own all the stock and hold all the offices of the corporation
  • You’re a sole proprietor and your payroll is less than $37,700
  • Your company is a partnership or LLC and your payroll is less than $35,100

Product Liability Insurance

This policy is for companies that make, sell, or distribute a product. It can cover a customer’s medical costs if they claim your product caused them physical harm. It can also cover your legal fees if a customer sues you for selling a product that injured them or made them sick.

An example of this is a pesticide or cosmetic that causes a severe allergic reaction. 

Professional Liability Insurance

Anyone that provides some sort of professional service needs professional liability insurance. This includes lawyers, financial planners, and business coaches, just to name a few. This type of insurance can cover your legal fees if a client sues you for professional negligence.

How Much Liability Insurance Do You Need?

If you sell, manufacture, or distribute a product, you’ll need to consider how much damage it could do if something goes wrong.

If you’re providing professional services, the amount of professional liability insurance you’ll need depends on how much damage could be done if you failed to provide the professional services you were hired for.

For example, doctors tend to buy a lot of professional liability insurance — malpractice insurance — because their mistakes have the potential to make the difference between life and death.

How much liability insurance you’ll need will also depend on how your company is structured. If you set up your business as a limited liability corporation (LLC), it protects your personal assets if the business gets sued.

On the other hand, without the right insurance, your business could go bankrupt trying to pay off all those debts out-of-pocket.

Business Owner’s Policy

A Business Owner’s Policy (BOP) bundles different types of business insurance together. Most BOPs include property insurance, business interruption insurance, and liability insurance. This is often of much better value than sourcing these policies separately.

Protect Your Business With Lincoln Brokerage

There’s a lot at stake when running your own business. Because the world of business insurance can be so confusing, you’ll want to talk to a trusted advisor before making a decision.

At Lincoln Brokerage, we’ve helped protect Brooklyn business since 1932. We understand the unique challenges and risks New Yorkers face. We’ve got your back, and we’ll help you find the right coverage that fits your unique circumstances and your budget.

Connect with us and get the coverage you need for peace of mind.

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