When it comes time to look into insurance for your business, it can be confusing to know exactly what you need. Do you need liability insurance coverage? General liability? Professional liability? And what’s E&O, anyway? Here’s what you need to know.
Almost all insurance is liability insurance
The term “liability insurance” simply means insurance that protects you from a liability that you may have. A liability means that you are responsible for something, and therefore have to pay if it causes someone financial harm. All liability insurance pertains to third-party claims, that is, it covers you for something bad that happens to someone else, that is determined to be your fault.
Of course, you can also get insurance that covers you and your stuff, but that’s different. That applies to things like your auto insurance and homeowner’s insurance. For businesses, you should have insurance on the stuff that belongs to the business, but we’ll talk about that in a minute.
General liability coverage
General liability insurance covers three things: bodily injury, personal injury, and property damage. Remember, this is liability insurance, so it covers these three things when they happen to another person.
If someone gets hurt or a person’s stuff gets damaged while on your business premises, you can be liable. This means that your general liability insurance would pay for the costs associated with the injuries (in the case of bodily injury) or the cost to replace the stuff (in the case of property damage).
General liability also covers personal injury, which includes libel or slander. If you or someone who works for you says or writes something about someone that is untrue and causes harm, you can be liable for personal injury to that person. With social media, this is a very real risk. It also covers advertising injury, including defamation.
Professional liability coverage
Professional liability insurance is sometimes called errors and omissions, or E&O, insurance. It covers your business for things that you did that you shouldn’t have (errors) and for things that you didn’t do but should have (omissions). It covers things like negligence and dissatisfied customers.
It’s important to remember that professional liability insurance covers you even if you haven’t made a mistake. These days, you can do everything right and still get sued. And even if you prevailed in court, you still racked up legal costs to defend yourself. Professional liability insurance can cover your defense costs as well as any settlement or judgment.
Business owner’s policy
A business owner’s policy (sometimes referred to as BOP) includes general liability coverage, as described above, as well as coverage for business equipment and, in some cases, business premises.
If you own specialized equipment that you need to conduct business, this coverage is important for you. For example, if you’re a photographer, a BOP policy can cover your high-end cameras. If you’re a carpenter or tradesperson, it can cover your tools. If you are a graphic designer or an IT consultant, it can cover your workstation or server.
It’s important to remember that if you run your business out of your home, your homeowner’s insurance does not cover your business equipment. If your home is broken into and your computers, cameras, or other business tools are stolen, a homeowner’s or renter’s policy won’t pay for them. For that, you need business owner’s coverage.
In short, if you are in business, you probably need business insurance. The type and amount you need depends on the size and type of business you have, but just about every business needs general and professional liability coverage. The good news is, business insurance is affordable, especially considering what you could lose if you are sued. Liability insurance is a smart investment in your business.