What is liability insurance?
Liability insurance. It’s that piece of paper that protects you when your company decides to “move fast and break things”. Actually—it’s much more than that.
A liability insurance policy makes sure that the financial costs of an accident or injury don’t sink the business you worked so hard to build. Here are a few examples where owning a liability insurance policy could help your business:
- A client slips and breaks his arm during a site visit and decides to sue your company.
- You dent a homeowner’s front door while moving equipment for a renovation and they demand compensation for the damage.
- An employee in your company makes a false claim about the competition, and they sue you for slander.
There are a variety of scenarios, but you should get the idea.
If someone brings claims against your business, liability insurance covers both the legal fees associated with defending yourself and the final compensation if you’re found responsible. Leaving your company insurance with liability insurance means you could potentially be paying a bigger price if a lawsuit was brought to your company.
Who needs liability insurance?
Every business owner should have liability insurance.
There are countless commercial insurance options on the market, and it can be overwhelming for business owners to determine exactly which insurance policies they need.
While no one wants to be left exposed, no business owner wants to overextend themselves by paying too much in monthly premiums.
That being said, liability insurance is a fundamental piece of your commercial insurance pie. Even if you haven’t taken the time to explore all of your insurance options, don’t waste too much time stalling on liability insurance.
Whether you’re based in an office, a factory, or a mall, your business should have liability insurance.
Does your home-based business need liability insurance?
Unsure whether your home-based business needs it? Consider the nature of your business.
Do you distribute a physical product? There is the possibility that something could be wrong with the product or a component is recalled by the manufacturer, putting your business in jeopardy.
If you sell a service and that service has enormous financial implications on a client (let’s say you offer accounting services or investment advice) you may want to look into special liability insurance policies like professional liability insurance or errors and omissions insurance.
What are some examples of liability insurance?
Different companies sell their liability insurance products by different names. There are also industry-specific examples of liability insurance.
Liability insurance is most commonly referred to as general liability insurance.
It’s also known as business liability insurance or commercial liability insurance. Don’t get too hung up on the name. Instead, focus on the specific details of your policy by carefully reviewing exactly what you’re covered for and how much you’re covered for.
Most people automatically think of personal injuries to customers on company property, but there are several other scenarios where general liability insurance is useful.
|Liability Insurance Coverage||Liability Examples|
|Personal injury||● A customer slips and falls in your store|
|Property damage||● An employee dents a homeowner’s front hallway while moving equipment for a renovation|
|Product liability||● A defective product injuries a customer|
|Completed operations||● Months after a renovation is done, a fire breaks out due to an electrical mistake your workers made|
|Reputational damage||● You’re accused of slander for defaming a competitor in an on-air interview|
|Professional Liability||● A client loses a lot of money due to bad financial advice your company gave|
Table: Overview of Liability Insurance Coverage
Property Damage Liability
One of the most popular examples of liability insurance is property damage liability insurance. Property damage liability insurance protects your business in case an employee accidentally damages a client’s property during a window installation or a plumbing job. It’s bound to happen with even the most careful workers.
Consider the amount of activity taking place in a house during a renovation. One of your employees may break a window, dent a wall in the hallway, or knock over an expensive antique.
Depending on the extent of the damage, the cost of paying back the homeowners might exceed the cost of the work you’re doing in the first place. That’s not a situation you want to find yourself in, and with the right liability insurance, you won’t.
Product Liability Insurance or Completed Operations Insurance
If you sell someone a product with a no-refund policy and they decide they don’t want it later, that’s tough luck for them. On the other hand, if you sell someone a product that harms them in some way, you’re going to be paying a lot more than a refund.
In modern business, the old dictum “buyer beware” has lost most of its power.
For instance, if you sell a camera and a defect in the camera causes it to explode in the owner’s hands, you’ll be very thankful that you have product liability insurance during what’s sure to be an expensive year of recalls and lawsuits.
Consider another example of liability insurance, completed operations insurance. This particular type of liability insurance has your back in case you finish a job and things go south after the fact.
Imagine completing a rewiring job in an office building. The client’s happy, you get paid, and everyone goes about their business.
Several months later, a fire breaks out and the authorities deem a bad wiring job responsible for the blaze. Even if you avoid a criminal investigation, you’ll almost certainly be paying for the damage and additional compensation.
This kind of liability insurance doesn’t just apply to defects. Let’s say you own a fast food restaurant and several customers who visited on the same day come down with a serious virus. An investigation traces their illness back to a sick employee who came to work that day.
This is another instance in which general liability insurance can help you out.
Coverage for Reputational Damage
Damage doesn’t have to be physical. It can be reputational and inflicted verbally or in writing. A general liability insurance policy can help you handle the legal fees associated with defending yourself against libellous or slanderous claims.
Likewise, liability insurance is useful if you find yourself on the receiving end of a lawsuit for libel or slander. If you make an untrue statement in a piece of advertising or in the media about your competition, and you’re slapped with a suit, your policy can help you cover the cost.
Professional Liability Insurance
Professional liability insurance typically isn’t included in a general liability insurance policy. That said, it is an example of liability insurance.
Professional liability covers situations like:
- Mistakes or oversights: An accountant makes an honest mistake can cost his client millions of dollars.
- Subpar service: A consultant doesn’t deliver the service they promised as outlined in their contract.
- Undelivered service: A contractor is unable to deliver on the promised service.
All of these situations can lead to lawsuits. Is a useful to have professional liability insurance, since these sorts of mistakes are not covered under a general liability insurance policy.
How much does liability insurance cost?
This depends on how much risk your line of work comes with. It also depends on whether the company manufactures or sells custom products. The average cost ranges from $500 – $1000 if the business is just an office.
For which segments does Zensurance offer liability insurance?
- All office professionals
- Anyone that distributes a product
- Anyone with a physical office space
Liability Insurance is a Critical Piece of Your Commercial Insurance Pie
Running a business without general liability insurance is not a good idea. It isn’t the only insurance you should have, but it’s one of the policies you don’t want to drag your heels acquiring. For the sake of your business, your employees, and yourself make sure you get a liability insurance policy as soon as possible.
Zensurance is Canada’s leading online commercial insurance broker. We offer a full range of insurance products to small businesses, with a particular focus on digitizing businesses and technology startups. We understand what it is to work with new technology, and know the most common risks of which you should be aware. Based on that (and a lot of analytics), we recommend the ideal insurance coverage for your business.
Neya Abdi is a startup storyteller who covers innovation, marketing, business development, and customer engagement. Her limitless curiosity drives her to learn how organizations progress from idea generation to successful implementation in order to delight customers, make positive social contributions, and generate revenue. She lives in Toronto.