What Types of Liability Insurance Do You Need? Liability insurance protects your assets and income against costly legal claims from a third party. Without it, a lawsuit could deplete your bank accounts and real estate holdings.
Typically, liability policies are written on an “occurrence” basis and provide defense costs and coverage for damage that actually occurs during the policy period. Most businesses need at least some form of this coverage.
General Liability Unless your business is a doctor, lawyer or a tech company that requires specialized liability insurance, chances are you need general liability. This type of commercial insurance protects your business from the costly claims that can occur during normal operations. It can cover bodily injury (like a customer who slips and falls in your store) or property damage caused by your business. It can also help with reputational harm (like a lawsuit alleging libel or slander) and advertising injury (like a claim that your published material infringes on copyright).
Generally, a general liability policy includes three kinds of coverage. Bodily injury is the most common. It can also include property damage, which might be something like a client’s home being damaged while your employee works at their house. Personal and advertising injury is another coverage option that helps with claims such as slander or copyright infringement. Many small businesses need to prove they have general liability before customers will work with them, so this is a critical part of any business plan.
Auto Liability The liability portion of auto insurance protects you from financial loss if you cause an accident that injures someone else or damages their property. Each state sets minimum auto liability coverage requirements, but you can usually buy more than the minimum to protect your savings and other assets. Bodily injury liability covers medical costs for injured people (up to a maximum limit), as well as lost wages and pain and suffering.
Property damage liability covers the cost of repairs to other people’s cars or other property, such as fences and buildings. It can also cover the cost of a rental car and compensation for damaged roadways.
In no-fault states, bodily injury and property damage liability coverage pays for the driver and passengers’ medical expenses, regardless of who caused the accident. However, some no-fault states require additional personal injury protection or uninsured/underinsured motorist coverage, which are similar to liability but pay for your expenses if you’re hit by an uninsured or underinsured driver.
Professional Liability Even well-meaning business owners make mistakes, and clients aren’t always understanding when those errors cause them financial losses. Professional liability insurance, also known as errors and omissions (E&O) insurance, covers legal fees, judgments or settlements related to allegations of negligence, breach of contract, misrepresentation or conflict of interest in your professional services.
Professional liability insurance doesn’t cover bodily injury or property damage, which are covered by commercial general liability (CGL) policies. However, if someone is injured by botching their dye job or misdiagnosing Fido’s upset stomach, you’ll need to pay for medical costs and damages out-of-pocket without this insurance.
Most professional liability insurance policies are claims-made policies, which mean a lawsuit must be filed during the policy period in order for coverage to apply. Additionally, the insurer’s payment of defense costs may reduce available policy limits. Fortunately, occurrence-based policies are also available. This type of policy pays out for incidents that occur during the course of the work performed, even if they’re not reported to the insurer until after the policy expires.
Employment Practices Liability Employment practices liability (EPLI) insurance protects businesses from the cost of legal defense and damages resulting from employment-related lawsuits. The most common EPLI claims involve allegations of wrongful termination, sexual harassment, workplace discrimination and retaliation. Small and new companies are especially vulnerable to these kinds of lawsuits because they often don’t have the benefit of established HR departments or employee handbooks to help guide them in how they should hire, discipline or terminate employees.
In addition, EPLI policies are typically written on a claims-made basis, meaning that the incident that triggers a claim must have occurred during the policy period in order for it to be covered by the insurer. They also frequently include a self-insured retention (SIR) in lieu of a deductible, which means that the policyholder must pay out-of-pocket for some portion of a claim before the insurance company begins paying.
Although EPLI is sometimes sold as a stand-alone insurance, it’s more often included as an add-on coverage to management liability packages that provide directors and officers (D&O), fiduciary and professional liability and management errors and omissions coverage.assurance rc