How to Get Liability Insurance for a Small Business

Getting general liability insurance for your company doesn’t need to be difficult. With just a few easy steps, you can have your small business covered and protected from financial losses. Let’s take a closer look at what those steps are and some of the key data in finding yourself the right policy. 

Understanding Liability Insurance

Small business owners face risks every day. These risks are often out of their control and are considered accidents. Liability insurance handles these claims so the small business isn’t at risk of financial loss. 

What is Liability Insurance?

When an accident or incident happens and the small business owner is responsible for it, he has liability. Without insurance, he pays for claims out of pocket, which can be a significant financial sum. With insurance, however, the insurance company is contracted to take the claim, investigate it, and pay a settlement or judgment. The insurance company will even pay for a legal defense of the small business. 

Types of Liability Insurance

There are three primary types of liability insurance:

• General liability insurance: Pays third-party claims where someone gets hurt or has property damage due to general business operations. 
• Professional liability insurance: Is for claims where a client says that a professional service provider didn’t live up to the service agreement and did the job unprofessionally, leading to injury or financial loss. 
• Product liability insurance: This is for manufacturers or distributors of products that pay if a consumer is hurt by using the product.

Steps to Obtain Liability Insurance

Let’s look at the steps involved in getting liability insurance.

1. Research Insurance Providers

Work with carriers that have a good financial rating with AM Best. This means that the company is financially solvent and capable of handling a large number of claims. You also want to read reviews to get a sense of how they handle claims. While every company is going to have negative reviews because not every claim is covered and small business owners get frustrated, look for patterns that can help you determine if a company has a solid claims-paying reputation. 

2. Request Quotes

Get a quote from the companies you are interested in working with. Work with the agent to set policy limits for the quote and get two or three to ensure you will be able to compare them adequately. 

3. Compare Coverage Options

Put the quotes next to each other and compare them. Make sure that each quote has the same coverage option so that you are comparing apples-to-apples and get the right data. 

4. Evaluate Policy Limits and Deductibles

Talk to the agent about the policy limits and deductibles. Take a look at what double coverage looks like. You’ll often be surprised that double coverage is not double premium. It’s very cost-effective to increase your liability coverage.

5. Consider Additional Endorsements

Work with the agent to add relevant endorsements to the coverage. This may be additional insured or other coverage. Adding an endorsement allows you to customize the policy to your needs without having to get a totally separate policy, which can be more expensive. 

Assessing Your Liability Insurance Needs

It can be hard to determine your liability needs because you don’t know what a claim will cost, and you don’t want to be on the hook for the difference between what the policy covers and the claim. Talk to your agent and assess your risk based on your industry and common claims. Talk with others in your industry to get a sense of what claims might look like and get as much insurance as you can afford to ensure you have enough coverage. 

Choosing the Right Insurance Provider

There are a few ways to get some insights into insurance carriers that small business owners can use. First is looking at AM Best ratings to see if the company is financially sound. The next is looking at the National Association of Insurance Carriers (NAIC) to check out the complaint index. This index tells you how the company rated for claims based on its market share. The closer the number is to zero the better they are at not getting complaints. 

Managing and Reviewing Your Insurance Policy

As your business grows, you’ll want to update your coverage. The more revenue you bring in, the greater the risk of a claim. Let your insurance agent know about these changes. Additionally, review your policy once a year to ensure that everything still meets the needs of your company. Take the time to review coverages and ensure that you still understand how the policy works.  

Common Mistakes to Avoid

Here are some common mistakes to avoid when getting a liability policy:

• Underestimating coverage needs: Remember that you pay the difference if the policy doesn’t pay for the full claim value. 
• Ignoring policy exclusions: Talk to your agent about exclusions to understand how to mitigate that risk. You may be able to get other insurance to fill the gap. 
• Overlooking the importance of policy renewals: Policy renewal periods are a great reminder to review coverage and see if your business has grown and needs more insurance. 

Find the Right Liability Insurance for Your Business

Policy Ape is dedicated to helping you find the right liability policy for your business. Prevent financial loss by getting a policy today. We work with highly rated carriers who have an appetite for your industry making them competitive in price and eager to serve.