Business liability insurance

Business liability insurance provides crucial financial protection against the high cost of lawsuits. It is often a required step for small business owners looking to secure leases, client contracts, and permits.

Even when you believe your business is not at fault, a customer or other third party could still sue over an accident at your shop or office. For example, if a client slips on a wet floor and is injured, your business could be held responsible for their medical expenses, lost wages, and pain and suffering.

Because legal defense costs and medical bills can devastate a business, even if you're not to blame, general liability insurance is universally recommended. It is often the first policy small businesses purchase, especially if they welcome visitors. However, many companies may need additional coverages designed to protect against distinct types of business risk.

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

When your business is sued, liability insurance covers the costs 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 liability (claims that a product you manufactured or sold caused harm) and advertising injuries, including defamation and copyright infringement.

Professional liability insurance is also called errors and omissions (E&O) insurance 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.

Employer's liability insurance is included in almost all workers' compensation insurance policies. It provides financial protection against lawsuits brought by employees claiming your business's negligence caused a work-related injury or illness.

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

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 commercial auto policies must meet your state's minimum requirements for auto liability limits.

Sole proprietors who use their personal vehicle for work should consider commercial auto insurance or hired and non-owned auto insurance (HNOA), as personal auto policies often deny claims related to business use.

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 that you carry a minimum amount of coverage for the underlying policies.

Business liability insurance (specifically general liability) provides protection when a business is held responsible for damage to another person's property (a third party's property). In contrast, commercial property insurance is the coverage that protects your own business assets, such as your building, equipment, and inventory, 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, as well as cover income loss if you have to temporarily close due to covered property damage.