Small-business owners must purchase a number of different insurance policies to protect their businesses, so understanding the difference between Liability Insurance and Property Insurance is an important way to make sure you know what you're getting. Take a look:
- Liability Insurance covers the expenses that result when things you do (or fail to do) cost someone money. Namely, this includes lawsuits – whether you go to trial or settle the dispute out of court.
- Property Insurance protects the stuff your business owns by paying to repair or replace damaged items after a covered event.
Small businesses need both of these coverages because they work together to make sure you have enough money to pay your bills when an incident or loss threatens your business. A lawsuit or property damage could wipe out your savings, put you in debt, and require that new revenue go toward legal bills or repair costs. Meanwhile, your business suffers.
But when you invest in Business Liability and Property Insurance, your insurance company – not your bank account – handles sudden financial burden.
What Insurance Protects You from Lawsuits? (Hint: Business Liability Coverage)
A “liability” is something that your business is legally responsible for. When you are “liable” for causing someone a loss, you are legally responsible for “making up” the loss, usually with money. And that’s where lawsuits come into the picture. Business Liability Insurance helps you pay for the cost of lawsuits and other expenses that you are legally responsible for.
Say an advertising firm rolls out a new social media campaign for a local restaurant. What happens if the restaurant’s sales don’t improve? It could sue the marketing firm, claiming it failed to fulfill its professional responsibilities.
The firm must now hire lawyers. These lawsuits can take years to go to trial, and the final cost could be huge. After paying for a client's lost profits, damages to their reputation, and other court-ordered remunerations, the firm could pay over $100,000 in total expenses.
Because small businesses don't have that kind of money, they invest in policies that offer liability coverage for…
- Lawyer fees.
- Settlements (when you resolve the dispute out of court for a set sum of money).
- Judgments (the damages a judge orders you to pay when you lose a lawsuit).
- Miscellaneous court and legal fees.
It's important to know that there are many kinds of liability insurance. Small businesses need to have different liability policies to cover different types of lawsuits, such as…
- General Liability Insurance. Covers physical injuries, slander, libel, infringement, and property damage lawsuits when someone outside of your business sues you.
- Workers' Compensation Insurance with Employer's Liability Insurance. Covers lawsuits related to workplace injuries and illnesses.
- Errors and Omissions Insurance. Covers lawsuits related to your work, including those arising from mistakes, omissions, and professional negligence.
- Employment Practices Liability Insurance. Covers employee lawsuits over discrimination, wrongful termination, and unpaid benefits.
How Does Property Insurance Work?
When you buy Property Insurance, the insurance company can insure equipment, computers, supplies, inventory, offices, and other business property against loss or damage.
Property Insurance covers damage that result from the specific events outlined in your policy. Common covered events include…
- Acts of vandalism.
- Some weather events.
Say a fire burns down a non-profit medical clinic. The NPO loses tens of thousands of dollars’ worth of medical equipment. In addition, the clinic must repair its building, replace furniture, and spend money on cleanup costs.
A Property Insurance policy covers all of these expenses, and some policies even cover the income you lose if your business has to shut down after a covered event. See our Business Interruption Insurance page for more on how your insurance helps pay your bills when your business suffers too much damage to operate normally.
As a small-business owner, you might qualify for a lower Property Insurance rate if you purchase this policy together with General Liability Insurance. This insurance bundle is called a Business Owner's Policy and offers a discount to qualifying small businesses.
It Takes Two: How to Get Business Liability Insurance and Property Insurance
These two types of coverage work together to protect your business from sudden bouts of bad luck. Whether it's a client lawsuit, a Workers' Comp claim, or a property loss, your insurance protects your business from the unexpected expense.
For free quotes for any of the small business insurance policies described above, fill out our online insurance form.