Even if your business has excellent safety standards, accidents and injuries can still happen. Without the right liability coverage, those mishaps and mistakes could leave you with hefty losses.
Fortunately, there is a wide variety of business liability insurance options available to protect your company. Some of these policies will be useful only in some industries or for certain businesses, but at least a few are essential no matter what kind of company or business model you have.
This article will go over four of those policies. Without these, your business is vulnerable to unnecessary losses.
1. Product Liability Insurance
Product liability coverage protects your company from lawsuits that result from injuries, illnesses, or property damage linked to one of your products.
Covered injuries and damage can result from:
- Manufacturing error
- Faulty design
This applies not only to complex products, like heavy machinery, but also simpler and seemingly innocuous ones, like toy soldiers.
Products with manufacturing flaws can cause injury. For example, a manufacturing error could leave a nail exposed on a pogo stick, which could lacerate a customer's foot or leg. Anyone who purchases the product and sustains such an injury can then sue the company for significant damages. Without product liability insurance, any settlement against the company's favor will have to come out of its profits.
2. Professional Liability Insurance
Professional liability insurance provides protection for your business in the event that an error or omission your company makes results in losses for a client.
This type of coverage is important for any business or professional because it's impossible to entirely safeguard against unintentional errors and omissions. In many cases, those are easy to fix and they're quickly forgotten. But when they result in substantial losses for a client, it could mean facing a major lawsuit.
Imagine you're running a consulting firm and one of your business professional offers a client some bad advice. The client acts on the information and suffers substantial losses. So, they sue your company for $10 million dollars in damages resulting from the mistake. If you have it, professional liability will be your saving grace in this situation. If you don't, your company is likely to end up eight figures poorer.
(See The Ins and Outs of Professional Liability Insurance to learn more.)
3. Commercial General Liability Insurance
Commercial general liability insurance protects your company from lawsuits over injuries or illnesses sustained by non-employees on your company premises or ones caused by your employees on your clients’ premises.
This type of coverage is useful for any business but is especially important if many people set foot on your company's premises on a regular basis.
If a customer slips on a wet floor after a custodian has mopped it and breaks their hip, they're entitled to sue your company. This is a common occurrence, even in places where there are few obvious obstacles, like open air lots or the showrooms of car dealerships). When this happens, your CGL policy will provide you with financial protection.
4. Umbrella Liability Insurance
This type of coverage differs from the previous ones insofar as it doesn't provide financial protection for a specific type of liability. Instead, an umbrella liability insurance policy acts as broad coverage to insure against risks that aren't covered by your other liability insurance policies, due to technicalities or other reasons.
Again, every business can use the protection of an umbrella policy, but some more than others. If your company faces any unusual or excessive risks, those are likely excluded from your primary insurance policies. But with umbrella insurance in place, those otherwise excluded risks will be covered.
Another important feature of umbrella liability insurance is that it provides financial protection when the limits of your primary insurance policies are exhausted. Suppose you're facing a $2 million product liability lawsuit, but your product liability insurance is capped at $1.7 million. Normally, you would have to pay the remaining $300,000 out of pocket, but if you have umbrella insurance, it will supplement your primary coverage and pay the excess.
Whenever you face a lawsuit, having the right kind of liability insurance can cushion your losses significantly. Even if your business is profitable and has a healthy cash flow, it can be hard to survive or recover from a lawsuit.
You need to evaluate your business's particular risks and figure out what kind of insurance coverage you'll need. But one thing's for sure: no matter what kind of company you have, it's reckless to operate without the four policies discussed above.