Why Liability Insurance Is a Must for Any Small Business

Adding another financial responsibility to an already long list of expenses as a small business owner may seem a wrong move at first glance. But forgoing liability insurance could be detrimental to your business.

Here's why liability insurance is a must, as well as a few tips on how to get the right coverage for your business without paying too much on your business credit card.

What is liability insurance?

Liability insurance helps protect a business's finances when someone brings a lawsuit against it. If anyone sues your business (for various reasons), liability insurance can help you cover the financial burden.

For example, if someone trips and falls in your store and sues your business, liability insurance can help. Or if you have a small business that fixes a client's antique furniture and you accidentally damage it and the client sues, liability coverage will come in handy.

Here are some of the most common types of liability insurance:

• General liability: This type of insurance covers lawsuits involving bodily injury or property damage.
• Professional liability: This insurance is sometimes called "errors and omissions coverage." It typically covers negligence, copyright infringement, and personal injury.
• Product liability: This type of liability insurance protects a business from lawsuits in which someone claims a loss or injury caused by a product you make or sell.

Why small businesses should have it

Without liability insurance, you may personally be financially responsible if your business is sued. This means you need liability insurance if your personal or business bank account can't afford to weather a lawsuit.

If you think it's doubtful that your business will face a lawsuit, think again. Here are some sobering statistics:

• 36% to 55% of small businesses are involved in some sort of business litigation annually
• 75% of small businesses are underinsured
• The median cost of a liability suit is $54,000

While most states don't require you to have liability insurance, the above statistics show just how important it can be to have it.

How to get liability insurance

The best way to buy liability insurance for your business is to work directly with an independent insurance agent. Why? Because every business is different and there are many factors that determine your policy.

Each of the following may affect how much liability insurance you need:

• Your business's industry
• How many employees you have
• If you've had past claims
• The size of your business' property
• What deductible amount you want
• Where your business is located

The above factors will also determine how much you pay for liability coverage. General liability insurance for small businesses typically costs between $300 to $900 annually.

Like other insurance policies, it pays to shop around to find the policy coverage and price that's right for your business. To get the best price, work with an independent insurance agent. Independent agents can sell you policies from competing insurers, making comparing policy quotes easier for your business.

Liability insurance may seem like just one more expense eating into your profits. But the risk of not having it is far worse than the monthly cost. If you own a small business, liability insurance will make sure your business is prepared for unexpected lawsuits.