For small business owners, liability insurance is a critical consideration. Insurance exists to allow business owners to transfer risk to an insurer in exchange for paying a premium. The cost of the premium varies according to the risk, and insurers take into account a host of different factors when assessing this cost. So you may be wondering, "Do I need liability insurance for my small business?"
As a small business owner, you are affected by a number of risks. These can vary from damage to your property from fire or flood, through to injury to your customers or employees or negligence caused by somebody who works for you. Without insurance, your business would need to bear all the costs arising from these incidents, and that might well be far more than your income permits. Liability insurance is likely to be something that your small business requires.
Types of policies
There are different types of liability insurance available for your business. Third-party liability insurance, for example, will cover it against virtually all risks, while a general commercial liability policy will have restricted benefits matched by a reduction in the cost of premium. Liability insurance can be complicated to administer, and insurers could insist on some restrictions and/or conditions, based on your business sector or history. Make sure that you always read the small print before signing up.
Level of coverage
The decision on which level of coverage to take is dependent on your business, the risks posed to it and your concern about protecting it from these risks. For example, if you operate from home, have no other employees and are engaged in work that has a very low risk of impacting others, you might be interested only in very basic insurance. When you have regular contact with the public or when you have a number of employees, more comprehensive cover might be more appropriate. You should consider the issue of risk carefully before deciding which level of coverage you require.
What is not covered
Liability insurance will not cover certain types of events that are normally covered under other policies. Claims related to a company vehicle, for example, would normally be covered by a motor vehicle insurance policy. Third-party liability insurance cannot cover your business against the risk of business debt, and to protect yourself from personal liability, you must ensure that the business is set up and administered in the right way.
There are a number of other policies that might complement third-party liability insurance. Professional indemnity insurance prevents your business from suffering losses as a result of a malpractice suit. This is compulsory in many industries such as medicine and veterinary science, where the nature of the work could have a significant impact on the well-being of others. You could also separate your liability insurance into different policies, focusing on your products, vehicles or property according to how critical these assets are to the continuity of your business. Enlist a specialist's advice if you are unsure.
Steps can be undertaken by your business to reduce the level of risk and the resulting cost of future premiums. Appropriate fire and smoke alarms are generally compulsory under the law and should be maintained regularly. Make sure that staff members are issued all appropriate safety equipment. Keep the workplace in excellent condition, addressing all maintenance issues promptly. You should also review your policy annually to ensure that the level of coverage remains appropriate as your business changes.
Insurance is a necessary cost to your business. While it might appear as an unwelcome line on your profit and loss account, it could actually save your business from a major financial disaster. Make sure that you match the right coverage to your business needs, and manage your business in such a way that you are focused on reducing risk at all times.
Small business insurance actually includes several types of insurance coverages designed to serve the typical needs of the small business owner. Here are some frequently asked questions (FAQs) about small business insurance covers available.