Business Liability Insurance: Meaning, Overview, Types

Business liability insurance safeguards the financial interests of businesses and their owners in the event of formal lawsuits or third-party claims. Such plans cover both direct financial liabilities and legal defense expenses. There are three major types of business liability insurance:

• General liability insurance
• Professional liability insurance
• Product liability insurance

Understanding Business Liability Insurance

In the event of a business-related lawsuit, small business owners put their personal fortunes at risk. Partnerships and single proprietorships are most exposed to extravagant costs and so have the greatest need for this type of insurance coverage. An owner may be subject to personal danger even if the company is structured as a limited liability corporation (LLC).

Business liability insurance safeguards a company's assets and pays for legal duties such as medical expenses incurred by a client injured on store property, as well as any on-the-job accidents received by staff.

• Businesses that face larger risks than standard liability insurance can supplement their coverage limitations with excess loss reinsurance or umbrella insurance. 

Liability insurance also covers the expense of a company's legal defense, as well as any settlement offers or awards that a corporation is required to pay as a result of legal judgments levied against them. Compensatory damages, non-monetary losses sustained by the aggrieved party, and punitive damages are examples of these costs.

General liability insurance protects businesses that rent the commercial real estate property in which they operate from liability for damage caused by fire, mold, floods, or other physical disasters.

Finally, commercial liability insurance includes coverage for fraudulent or deceptive advertising claims, such as libel, slander, and copyright infringement.

The Cost of Business Liability Insurance

The cost of coverage is largely decided by a company's assessed risk levels. A building contractor, for example, who works with heavy equipment and risky apparatus like cranes and forklifts will pay more for coverage than an accountant who sits safely behind a desk.

Businesses in the lower risk group should seek a business owner policy (BOP), which combines general liability and property insurance at a cheaper cost. Exclusion clauses should be included in any new or extra commercial liability insurance plans to minimize duplication of coverage from rival insurance providers, hence lowering costs.