Running a small business without insurance is like swinging on a trapeze without a net, and for many more reasons than you probably think. Depending on what kind of business you have, there are a multitude of risks involved, but they fall into two basic categories. The first are physical risks – the risk of somebody getting injured, property or products being damaged, floods, fires, and other natural disasters that can cause a business interruption. The second are legal risks – allegations of negligence, malpractice, wrong advice, or breach of good faith. Every year, nearly 60 percent of lawsuits against businesses affect companies making less than $1 million a year. Even if you’ve done nothing wrong, it’s remarkably easy for your company to get caught up in a lawsuit, which can result in damage to your finances, reputation, and productivity. This is why every business needs professional liability insurance.
1. Insurance Requirements
When you are shopping for professional liability insurance, the first thing you should do is research the legal requirements in your state and for your industry. In most states, basic liability insurance is required, which protects you against bodily injury or property damage incurred by clients or customers at your place of business. Worker’s compensation is also a requirement, to protect you against lawsuits from injured employees. That basic type of insurance will cover an employee’s medical expenses and usually reimburse them for time off from work. With worker’s compensation claims and frivolous lawsuits on the rise, these basic insurance premiums may not be enough, especially as your business grows and expands. And if you are involved in certain fields like medical or legal services, you can be required to have extra coverage beyond general liability, as well.
2. Errors and Omissions Insurance
Many different kinds of businesses find that they need the protection that comes with errors and omissions insurance. This kind of professional insurance comes in many forms, from the malpractice insurance that medical companies need to protection against accusations of negligence. Errors and omissions is most often used by people who provide services or counsel, such as consultants, insurance agents, engineers, appraisers, and even website developers. But there are other kinds of errors and omissions insurance that cover businesses that sell products, in case the product is defective or doesn’t perform the way the customer expected. It’s important to remember how easily these situations can happen, and how expensive it is to defend yourself in a court case, even if you are innocent. Insurance will cover the cost of defense and any financial damages associated with the case.
3. Civil Liability
Normal errors and omissions insurance typically doesn’t include everything that you could get sued for. If you add civil liability coverage, you are protected from accusations of defamation, breach of contract, breach of warranty, and theft of intellectual property, among other things. Of course, it all depends on what kind of business you run. If you’re involved in any kind of journalism or working with musicians, actors, or other performers, you might be interested in this type of insurance. Usually, you can tell by your area of business what kinds of frivolous lawsuits you’re most vulnerable to and shop for insurance accordingly. No matter what your business is, getting sued is not a rare occurrence – 1 out of 5 small businesses will be threatened with a lawsuit within their first few years of operation.
4. Understanding Professional Liability Insurance
Deciding to sue a business is not the same as charging them with a crime. Anyone, at any time, can make the claim that your business is responsible for damages. If they are willing to pay the costs associated with pursuing legal action, you will be obligated to pay the cost of defending yourself, which can be an incredible blow to your business. Legal problems sink many small businesses, whether because of financial losses or just general damage caused. Insurance can’t stop someone from suing you, but it can pay for your defense costs, whether you are guilty or innocent. If your business has been running at least 3 years, you will probably pay a lower price for your premium, especially if you run the kind of business that is classified as low-risk. It’s better to get an occurrence policy, so that your claims will be valid for all incidents occurring while the policy is active.
It’s easy to research the kinds of professional liability insurance that are most common for your type of business and use an online service like TraderQuote to compare different premium prices. You might never need to use your professional liability insurance, but it could also very likely end up being the difference between whether your business sinks or swims. And when that moment comes, getting the right protection will have seemed like a no-brainer all along.
Karen Boyarsky is an avid blogger. You can follow her on Twitter @boyarskykareni. (401)