Small Business Liability Insurance
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What is business liability insurance?

Business liability insurance is any type of small business insurance that protects against accusations that your business caused damages, injuries, or losses.

Why is business liability insurance important?

Business liability insurance is a type of coverage that provides crucial protection against the high cost of lawsuits. It also helps business owners secure leases and contracts.

Even if a business is not directly responsible, a customer could sue over an accident that happened at your shop or office. For example, if a customer slips on a wet floor at your business and gets injured, you could be held responsible for their medical expenses.

Legal defense costs and medical bills can devastate a business, even if you're not to blame. That’s why certain types of insurance, particularly general liability insurance coverage, are recommended across all industries – especially those that welcome visitors.

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Liability insurance helps pay for:

  • Customer injuries at your shop or office
  • Accidental damage to customer property
  • Advertising that damages a competitor
  • Mistakes that harm a client financially
  • Incidents related to alcohol consumption if you serve drinks

When do businesses need liability insurance?

Your industry, state, and other factors determine when you need business insurance. You might need liability insurance to:

Sign a lease. Because accidents can be costly, your commercial property manager might require that you provide a certificate of liability insurance to sign a commercial lease.

Fulfill the terms of a contract. Clients may request commercial general liability insurance or professional liability insurance in a contract – especially if your small business is working on a project with a large company.

Get licensed. Real estate agents, dentists, and accountants may need liability insurance to fulfill licensing requirements for their profession. You may need liquor liability insurance to obtain a liquor license if you sell or serve alcohol.

Comply with state laws. State laws require commercial auto insurance, which includes auto liability coverage, for business-owned vehicles. Most states also require business with employees to carry workers’ compensation insurance for workplace injury liabilities.

How does liability insurance protect your business?

When your business is sued, liability insurance covers the cost of legal fees, court-ordered judgments, and settlements up to your policy limits. The per-occurrence limit is the maximum amount your insurer will pay for a single incident, and the aggregate limit is the most it will pay during the policy period.

A general liability policy covers the most common liability risks, but business owners should consider other coverage as well. Here's a breakdown of the most frequently purchased liability insurance policies:

General liability insurance protects against common third-party risks, such as customer lawsuits over bodily injury or property damage. It also protects against lawsuits over product defects and advertising injuries, including copyright infringement.

Professional liability insurance is also called errors and omissions insurance (E&O) or malpractice insurance, depending on the industry. It covers your legal costs if a client sues over a professional mistake or oversight, such as a missed deadline.

Commercial insurance provides peace of mind that lets you focus on your business, not your risks.

Employer's liability insurance is included in almost all workers' compensation insurance policies. It provides financial protection against lawsuits brought by employees claiming your negligence caused an injury.

Commercial auto insurance helps pay for liability claims if your business vehicle gets into an accident and someone sues over an injury or property damage. All car insurance policies need to meet your state's minimum requirements for auto liability limits.

Sole proprietors who own a vehicle used for work should consider commercial auto liability insurance, or hired and non-owned auto insurance (HNOA), in additional to any personal liability policies in case they are involved in a car accident while driving their personal car for work.

Cyber liability insurance helps small businesses recover from costly data breaches and cyberattacks. It also protects network security businesses and IT consultants against lawsuits from clients who might hold them responsible for failing to prevent a breach.

Commercial umbrella insurance can provide additional coverage for liability claims made on general liability, employer’s liability, or a commercial auto insurance policy once policy limits have been reached.

Before you can purchase an umbrella policy, however, an insurer will require you to carry a certain amount of coverage for the underlying policy. Once the minimum coverage has been met, your business will qualify for an umbrella insurance policy.

Does business liability insurance protect against property damage?

Business liability insurance provides protection when a business is held responsible for another person's property damages or losses. Commercial property insurance is another type of insurance that protects your business property against theft, fire, vandalism, and other risks.

Most small business owners qualify for a business owner's policy (BOP), which combines general liability insurance with commercial property insurance at a discount. A BOP can help pay to repair or replace your inventory, equipment, and other business property after damage or loss.

Does commercial liability insurance protect against lawsuits related to the coronavirus (COVID-19)?

Most business insurance policies exclude communicable disease coverage, such as damages related to COVID-19. However, policies such as professional liability insurance and employment practices liability insurance (EPLI) often provide coverage for lawsuits regardless of the cause.

For example, a professional liability policy might cover an expert who missed a deadline due to the coronavirus, while EPLI could cover a wrongful termination lawsuit related to COVID-19. Read more about lawsuits related to the coronavirus.

How much does small business insurance cost?

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Business insurance is a broad category that covers many different policies. Factors that affect the cost of insurance premiums include:

  • Policy type
  • Coverage limits and deductibles
  • Business operations
  • Industry risks
  • Location
  • Number of employees
View Small Business Insurance Costs

Key takeaways about business liability insurance

Here are four key takeaways about business liability insurance:

  1. Your landlord, client, or state law might require you to carry business liability insurance.
  2. Even when it's not required, you might need business insurance to make sure your business can survive a lawsuit, data breach, or other unexpected incident. Commercial insurance provides peace of mind that lets you focus on your business, not your risks.
  3. Different types of business insurance protect against different risks. If you don't know what kind your business needs, chat with a licensed insurance agent to learn more.
  4. Commercial insurance is affordable for small businesses. For example, general liability insurance costs about $40 per month.

Find answers to frequently asked questions about business liability insurance, or get an insurance quote today.

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