Understanding the Different Types of Liability Insurance

Your business is your livelihood, so you want to be sure your finances are protected if a customer or client files a claim of injury or loss against you. Several types of liability insurance are available to help cover the legal expenses and settlement fees resulting from mistakes or omissions you might make — or someone alleges you make.

Overall, liability insurance provides financial and legal support when you experience an allegation (that is, a claim against you). The insurance provider also navigates the claim and legal processes so you can get back to running your business.

But there are different types of liability insurance for small businesses and professionals. So which ones do you possibly need — and what’s the difference between them?

In this article, we’ll help you understand:

• What liability insurance is and what it covers
• The types of liability insurance you can get
• How to choose the right liability insurance policy
• Where to find affordable, comprehensive coverage

What Is Liability Insurance?

Liability insurance is an insurance policy that covers claims relating to injuries or property damage. Claims may result from:

• Mistakes, such as a marketing consultant writing, designing, and printing thousands of postcards with a major typo for a client, causing a financial loss
• Mistakes, such as a plumber’s error that causes a client’s bathroom to flood
• Negligence, such as a bookkeeper providing inaccurate information, causing financial loss for their client
• Accidents, such as a customer getting injured by a product that falls off the shelf while they’re shopping
• “Third-party claims” and injuries to other people (not employees) or their property

All business owners should have at least one type of liability insurance coverage to provide legal and financial protection for these kinds of incidents.

3 Types of Liability Insurance Coverage

The types of liability insurance for small business owners differ from the personal liability insurance you probably have through your automotive or homeowner’s policy. Personal policies don’t cover business-related claims. For those, you need one or more business liability insurance policies.

Why more than one for liability? Types of liability insurance cover different categories of claims. Let’s take a look at three common policies and how they can help protect your business.

General liability insurance

General liability insurance (GL) covers claims relating to bodily injury, property damage, or personal injury to third parties (meaning not you or your employees).

• Bodily injury. This can happen if a customer slips on a wet floor at your place of business and breaks a bone or trips over a loose rug and suffers a sprain.
• Property damage. This includes any damage you do to a customer’s property, whether you scratch their floor while installing cabinets or break a valuable vase during a real estate open house.
• Personal or advertising injury. These claims involve copyright infringement, failure to deliver on a promise you make in a contract or ad, and reputational damage, such as making false statements about a competitor’s business to make yours look better.

Having a GL policy doesn’t cover you if someone damages your property or an employee gets injured while working for you. These incidents fall under commercial property and workers’ compensation insurance.

Professional liability insurance

If a customer claims injury or loss due to mistakes or negligence on your part, you need professional liability insurance. Errors and omissions (E&O) insurance and medical malpractice insurance are two types of professional liability insurance. They are designed to cover allegations brought against you for an error or failure a customer believes you made — even if it wasn’t your fault.

While malpractice insurance is only necessary for medical and dental professionals, many types of small businesses, professionals, and contractors can benefit from the protection of an E&O insurance policy. Business owners who have E&O insurance are covered for incidents like these:

• Missing a deadline you agreed to at the start of a project
• Breaking or violating the terms of a contract
• Failing to meet a certain standard of care in your work for a client
• Giving bad advice that results in a client losing money or suffering other damages

Sometimes you may be included in a claim for something in which you weren’t directly involved. This can happen when a customer or patient files a claim against the team you work with and holds everybody responsible. Professional liability insurance covers your legal needs in all these cases.

Employer liability insurance

General and professional liability insurance don’t protect you if an employee gets hurt on the job. That’s when employer liability insurance, such as workers’ comp, is needed. This will help pay for medical treatment and protect your business from a lawsuit if the employee sues.

How to Choose the Right Liability Insurance Type for Your Business

By now, you might be feeling overwhelmed by all the legal risks you face as a business owner, professional, or independent contractor — but don’t worry! Liability insurance is there to give you peace of mind. The right policy or combination of policies lets you work confidently with customers and clients, knowing you’re covered if anything unexpected happens.

Not sure how to pick the best coverage? You could consider these details about your business:

• How and where you provide services
• The types of products or services you sell
• What coverage your landlord, industry, or local laws require

As you evaluate your options, compare policies and prices from different insurance providers. Consider all potential issues you and your business could face and offer enough coverage to protect you financially in the event of a claim.

How much you pay for types of liability insurance depends on details like your industry, your location, and your limits of liability (how much coverage you choose). Some insurance providers offer the option of bundling several policies to help you save money on premiums.

Protect Your Business With Liability Coverage From Berxi

Liability claims happen to even the most diligent business owners. Berxi can help you get the coverage you need with professional liability insurance that costs, on average, 15% less than industry standards. As part of Berkshire Hathaway Specialty Insurance Company, Berxi offers the peace of mind of an A++ rating for financial strength, expert legal support throughout the claims process, and coverage for the common costs associated with defending and settling a claim.

Get started today with a reliable liability policy that protects your business.

Last updated on Dec 06, 2024.
Originally published on Dec 05, 2024.

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• Small Business
• Insurance EDU

The views expressed in this article are those of the author and do not necessarily reflect those of Berxi™ or Berkshire Hathaway Specialty Insurance Company. This article (subject to change without notice) is for informational purposes only, and does not constitute professional advice. Click here to read our full disclaimer