As a new business owner, liability insurance is a vital form of personal and financial protection. But what type of liability insurance do you need? The most common forms of business liability insurance are a general and professional liability. What do these mean for you? And do you need one or both? Here's what you need to know.
What Is General Liability?
General liability business insurance protects the company and personally-liable owners from lawsuits over injuries or damage caused by their business. This is the most universal form of business liability, and it may even be mandated by your state oversight agencies or licensing rules.
As its name implies, general liability coverage kicks in when the company or its employees are accused of somehow causing damage through things like negligence, reckless behavior, theft, or intentional misconduct. Incidents might range from a customer who slips on an icy walkway to a forklift dropping a load onto a vendor truck in the lot.
What Is Professional Liability?
While general liability insurance covers the largest range of incidents, it does have limitations. What if the harm was not caused by an accident or bad behavior? Consider an accountant who prepares a company's tax forms. If the accountant makes an error, such as deducting items that the IRS then disallows, the client might sue for compensation. Being accused of professional misconduct, a material error, or lack of knowledge isn't usually addressed by general liability.
This is where professional liability insurance comes into play. This insurance targets skilled tradespeople and professionals who may be sued for actions they take within the scope of services they perform.
Do You Need Both Insurance Coverages?
While nearly all small businesses need general liability protection against the unexpected and unforeseen, not everyone needs professional liability as well. If you make goods for sale, for instance, you may not be in a situation to have your professional skills cause problems with clients. But an electrician, plumber, lawyer, doctor, or mechanic may need this additional coverage.
Most business owners do well to begin by determining what their general liability policy allows and, more importantly, what it disallows. These exceptions are where other policies may become necessary to fill in gaps.
Where Should You Start?
As a small business owner, you don't want to pay for insurance you don't need. But you can't afford to underestimate your needs either. The best way to decide what forms of liability — be it general, professional, or a niche policy — you should purchase is to work with an experienced business insurance agent in your state today.