Liability insurance is a form of insurance that every business should have some level of investiture in. That having been said, you may be looking to open your own business and have only a very vague understanding of what liability insurance is or is not. This article has been written to clarify the topic and elucidate its specifics.
Defining Liability Insurance
In short, general liability insurance for a business is a financial product that exists to step in when something unfortunate happens on the premises of a business. Examples of where this sort of insurance comes into play can include:
- Covering the medical costs for a restaurant employee’s slip-and-fall incident in the kitchen. This iteration of the insurance policy is known as workman’s compensation and is mandatory for all businesses to purchase.
- “Advertising injuries” like copyright disputes, slander, and libel, are pertinent to the business.
- Repairing damage done to the business property.
There are also personal liability insurance policies, which cover a single individual instead of an entire company.
What Influences the Cost?
General liability policies look at several components when calculating their premiums and how much they will cover. Expect a thorough assessment of the nature of the job, the total anticipated profit after accounting for sales and payroll, the size of the employee roster, all costs paid to subcontractors, and even where the business is physically located.
Understandably, the job itself is the greatest influencer on premiums. Any sort of career that incurs a high risk of injury is understandably going to have a higher premium than a more sedentary career. For example, a roofing company runs a much greater risk of on-the-job injuries than a tax preparation company because roofing entails working at elevated heights and handling equipment that can directly lead to self-harm; because a tax preparation company is mostly just focused on office work and documents, the potential for injuries to the company’s staff or customers is considerably lower than the risks of walking around a third story roof while handling nails.
There Is More Than One Kind of Liability Insurance
It is important to remember that liability insurance exists for businesses and individuals.
- Personal liability insurance is designed to help individuals when injuries or other damage to that person or their property arises on the policyholder’s property or as a direct consequence of the policyholder’s actions.
- Business liability insurance, covered above, exists to shelter the financial needs of companies and their business owners from litigation and damages. Furthermore, these sorts of policies exist to help manage the cost of actions like dealing with defective products or recalling products.
Umbrella Insurance Policies
This sort of financial product is sort of a fallback once the coverage for a person’s relevant insurance policies has been exhausted, basically acting as an umbrella to handle additional unexpected costs of a person’s automotive, watercraft, or property insurance. Such policies can generally be acquired in incremental coverage of $500k or $1M. Given that their coverage is six to seven figures, these sorts of policies are intended to blunt the damage from catastrophic setbacks, like a natural disaster that demolished most of the policyholder’s possessions.
Some Liability Insurance Policies Are Retroactive
It should be noted that the default variety of liability insurance, be it personal or for a business, will only cover issues incurred after the policy was purchased. That having been said, there are exceptions to this stipulation; these “time traveling” forms of coverage are known as “backdated liability coverage” policies. Backdated liability insurance policies will cover an insurance claim before the policy was purchased. While this may sound very appealing, such policies are rather uncommon and only usually offered to businesses-never to an individual.
Closing Things Up
Liability insurance exists to protect a person or business against the many forms of chaos that life or doing business can present to a policyholder. While there are many varieties of liability insurance, each with its specific forms of coverage, the prevailing idea behind these policies is that they can allow a person or business to operate without having to risk insolvency over every altercation or mishap that they are even tangentially connected to.
