Understanding the Basics of Small Business Liability Insurance

To protect your small business from potential lawsuits, or major claims, liability insurance is necessary. Policies can be very different depending on the scope of your small business, and cover different classifications of risks at varying premiums. Before a small business owner purchases an insurance policy, it’s important to know more about liability insurance.

Here are some quick tips to help a small business owner understand his or her policy better.

1. Liability insurance comes in many different forms.

– CGL (Commercial General Liability) is a broad commercial insurance product. A CGL can cover claims from negligence, accidents or injuries when the business is at fault. Businesses can be faced with wide array of damage charges, such as property damage, personal injury, and others.

– Product liability insurance – This covers any personal or property damage charges caused by a defective product. It can also cover legal fees for litigation involving a faulty product.

– Professional liability coverage Covers claims made against an organization or person based on a service; it can also be called errors and omissions coverage. This coverage is mainly used for companies that market a service instead of a product. For example, professional Accountants must carry professional liability coverage.

There are also other more specialty liability coverages such as cyber liability, and environmental liability. The nature and scope of your business venture determines what type of coverage is necessary.

2. The type of business may influence premium amounts. Insurance companies classify businesses in several different categories; these classifications play a key role in determining annual premiums. Since every business is unique, each has its own degree of risk associated with business operations, and some types face many more risks than others. For example, a company that hauls crude oil would be a riskier business than a general cleaning company. To get a better idea of premiums to charge, most insurance companies research the number of claims made by similar businesses with similar risks. The North American Industry Classification System is commonly used to determine what kind of risk classification a particular business should fall under. The size of a business’ payroll and the amount of sales made can also contribute to premium amounts. Since each scope of business will be different on various levels, be sure to discuss the matter with an insurance broker.

3. Liability insurance does not cover everything. Commercial General Liability coverage does not offer any benefits for employee’s illness or work related injuries. Worker’s’ Compensation coverage usually provides benefits for such expenses at an additional cost and would need to be purchased by the business owner. Also, be aware that liability coverage does not cover intentional acts or damages sustained from those acts. Criminal activity, employee dishonesty and fraudulent behavior are just some of the exlusions on liability policies.

4. Liability insurance may be a requirement. Most small business owners may be leaving themselves exposed to liability claims when it comes to car insurance. Third party liability is mandatory on all vehicles in Alberta; however, the average small business owner who carries tools, equipment, or supplies may need to purchase commercial car insurance to be adequately protected. Like Commercial Liability for your business, there are different classifications for your commercial car insurance. Always seek the advice of your insurance broker if you are carrying any items that are business related in your vehicle.

5. It is possible to decrease risks.

– Be sure to implement safety protocols – Have a risk safety manual in place for fire, burglary, and any other risk your business could face. Ensure your senior staff has access to these manuals and are aware of the steps to take in an emergency situation.

– Invest in the safety of your business- Items such as suppression/reduction tools (sprinkler system, fire extinguishers, smoke alarms) can reduce your risk classification and lower your insurance premiums.

– Continued training as your business grows – Be sure to grow with your business, change your protocols as needed and make certain that staff are trained and equipped to handle emergencies

Contact us at Alpine Insurance about additional ways to reduce the risk associated with your business.