Small Business Liability
If You Own A Business You Need Business Liability Insurance
Most small business owners underestimate their need for liability insurance. A wide variety of liabilities exist for almost all small businesses. You are liable for those who have signed a personal guarantee to get an important loan, if you personally have injured an employee, even accidentally, acted irresponsibly, or unless you operate your business as a separate entity.
Business liability insurance defends small businesses from the a lot of problems attributable to a lawsuit, whether it is from a client, an employee, or a vendor. For instance, a insurance agent would have totally different insurance needs than a farmer or a truck stop.
There are numerous other possible situations that can arise in which you would need some type of business liability insurance. When purchasing liability, be sure to think of your entire needs or possible needs surrounding liability insurance. It is best to be covered in case.
Types of Small Business Liability Insurance
There is a confusing array of policies that cover nearly every type of small business liability. However, whatever a policy is called it should protect you and your business from both the type of lawsuits your business is most likely to face and the rare, but devastating lawsuits that could conceivably force you into bankruptcy.
Here are some general types of liability policies:
General Liability Insurance
General liability insurance is commonly part of an insurance package. It provides coverage in the matter of lawsuits due to bodily injuries incurred by customers, employees, or guests while on your property or property damage caused by you or your employees. General liability is by far the most commonly encountered type of liability insurance, but there are four other common policies that are more tailored to the particular needs of certain customers.
Malpractice Insurance
Malpractice insurance, also sometimes called Professional Liability insurance, is a highly specialized insurance aimed at a specific group of small business people. Professional liability insures professionals like surgeons and accountants from claims against them. Traditionally, doctors where the target of most malpractice suits, but in the last twenty years it malpractice has become a fact of life for all professions from accountants to zoologists. In fact, in an ironic twist, malpractice suits against lawyers are now common.
However, if you operate any business where your customer trusts your expertise and cannot reasonably be expected to understand all of the issues connected with the services you are providing you probably need some form of malpractice insurance.
In some industries malpractice insurance is called errors and omissions insurance.
Product Liability Insurance
Product liability is another kind of insurance, but, unlike malpractice insurance, it covers tangible products; its function is to protect businesses from claims on defective products they have manufactured. One famous example of this is Toyota. For more than three decades Toyota was at or near the top of the surveys of the best built cars in the world year in and year out, but in a few short months in late 2009 and early 2010 the company’s name was damaged by a few defective products, numerous recalls, and thousands of consumers who believe that their car is defective too. Now, Toyota is facing a huge avalanche of product liability suits.
Employment Practices Liability Insurance
Employment practices liability insurance is a fairly recent type of liability insurance. This insurance protects employers from dissatisfied employees, former employees, and business associates who file claims accusing them of violations of legally required employment or business rights. Lawsuits alleging sexism, racism, gender bias, and religious persecution, among other issues, have dramatically increased over the last thirty years, and employment practices liability insurance is designed to preserve your organization from such suits.
Directors and Officers Liability
The most recent form of liability insurance, directors and officers (D&O) liability, has recently become a major element of insurance in the corporate world. All Fortune 500 companies keep D&O insurance because of significant rise in lawsuits against the officers and management of companies since the early ‘70s. Initially, directors and officers liability was created to shield the heads of companies from personal economic ruin for actions taken in their professional roles. However, these days D&O protects not only the directors and officers of a company, but the company itself, particularly from lawsuits by disgruntled stockholders.
How Much Does Liability Insurance Cost?
“How much coverage do I honestly need,” is the first thought that comes to mind when any business owner considers about liability insurance and naturally the true answer is, “Actually, that is simply difficult to determine,” because every business is very different and every business owner has a different attitude about how much risk they are willing to bear.
There is a wide range of things to consider when deciding to buy liability insurance, but here are the basic principles:
1. Are there any physical risks involved in your business? There are a variety of sorts of liability, for example economic liability, but none are more critical than the liability that is caused when an employee, customer, or, most severe of all, an innocent child is killed or seriously injured, on account of actions of you or your employees. In part, this is because of ratings that stories of maimed workers or customers have in the press, but also since the medical costs or worse survivor’s benefits are generally extremely expensive.
2. How much insurance is it possible to pay for? Of course this is the basic issue of all insurance. No one can really afford to insure against all possible risk. How do you balance the competing needs of risk and the expense of protection? There is no simple answer to that question. Insurance companies will provide you with lots of information, but they will helpfully suggest you insure against everything, because they are ultimately trying to sell insurance. Attorneys and accountants is a good idea to, but ultimately you might as well ask your dog or your priest. There isn’t any perfect solution. Well, unless you do not have a sufficient amount of liability coverage when you want it. That’s the predicament.
3. How expensive are judgments in your industry? Awards vary broadly from industry to industry and from state to state, but a good insurance agent can provide you with some direction.
4. What size is your organization? It might not be really rational, nevertheless the more substantial your operation the more insurance that you need comparable to smaller companies, because with more activities there is, all other factors being equal, an increased potential for a disaster. Moreover, a large, lucrative corporation that seems to have the capacity to pay a judgment is an infinitely more appealing focus for litigation when compared to a small business that apparently has no other assets than a ’79 Dodge Ram pick-up and six screwdrivers.
5. How much is it possible to abate your risk without adversely affecting your core operations? You should examine every procedure which you or your staff perform and see if you’re able to find a less hazardous option to achieve the same aim. Naturally, certain risks are innate to certain business, for example fishermen always have to be concerned about drowning, and certain answers are too costly to really put into practice, but sometimes you will discover a revolutionary idea that simultaneously reduces your liability and boosts your production. A risk management consultant will help you search for these ideal options, but you should definitely select a risk management consultant with detailed knowledge of your industry.
Frivolous Lawsuits
The truth is that modern culture has bred a litigious society.
People sue for anything and everything, even if it isn’t actually your fault. Read about frivolous lawsuits every day. Some of these cases are idiotic, many are obviously ignorant about the realities of running a business, and some are almost absurd, but regardless how baseless a lawsuit is on the merits if the court issues a judgment against your business you may be out thousands or even millions of dollars. That might not seem fair, but it is the truth.
You need liability insurance to shield you from those sorts of miscarriages of justice where your company was not by any means at fault, but, even more importantly, you need good well thought out liability coverage for those ill-fated times when the accident it is your fault.
What if You Are At Fault In An Accident?
Newspapers and magazines often discuss frivolous lawsuits, but the fact is that courts have gotten much tougher on frivolous lawsuits in the last forty years. Generally, frivolous lawsuits are no more than a hassle.
What you should lose sleep about if you lack liability coverage is that day when anything that can fail does fail. Nobody is perfect. This is a uncomplicated fact – not an excuse.
That’s what happened on the HMS Hood and that is what happened at start of the Great Depression and it can happen to your business. What’s the worst case scenario? As well as really thought about it?
Do you run a business where if one of your employees didn’t do their job correctly that a customer, or even worse a random citizen, could be injured or even killed? How many times a day do your employees perform these possibly unsafe tasks?
If you do not have adequate liability coverage you’re mindlessly trusting that those employees will perform exactly right every single time? Can you trust your employees that much?
Small Business Liability Insurance Quotes
There are a lot of categories of liability coverage and usually it’s a specialty insurance that is made to match the specific needs of your business. However, your individual policy is developed from existing templates and there is no reason to start from scratch, because today if a risk can be insured against someone somewhere has almost definitely bought a policy to cover that risk.
So, whichever company you purchase your policy from will compare your company to other companies they cover and develop a policy or group of polices to address the risks.
Due to the fact liability insurance is not a one size fits all product it is even more important that you should shop around than it is for car insurance or health insurance. You should definitely get four or five or five quotes and be cautious about buying on price alone. One of the best approach is always to actually ask several insurance agents what risks they believe are most important in your given situation and compare the answers with your knowledge and what you are able to learn from other sources.
Insurance Questions and Answers:
What are the tax liabilities for personal small business internet sales?
I’d like to sell my hand-made jewelry through an internet site through which one can sell hand-made items for a small fee. The site is similar to E-bay. I can’t seem to find information concerning income tax (U.S.) regulations without dredging through IRS guidelines. Does one simply keep track of sales and file a 1099, or does the IRS even monitor this type of income? Any advice is greatly appreciated.
Would it be profitable and advantageous to get a tax id. number in order to purchase supplies required for my jewelry?
Honestly, it depends on two things. First, the website. If they send you 1099s for the sales you make via their site (they should be able to tell you whether or not they do), then you have to report the income.
Secondly, how serious are you about this? Is this going to be a significant source of income, or just an extention of a hobby. The reason I’m asking is this will effect the deductablity of losses. If this is simply a hobby, and there is no 1099, then don’t even worry about reporting it. The IRS will never know.
However, if this is going to be serious, then I suggest that you get an EIN number, and keep track of your expenses. This will more than likely generate a decent loss, and that will lower your taxable income.
My suggestion is to discuss this with your CPA (NOT H&R BLOCK!!!!). If you are located in Kentucky, then I recomend my firm. We specialize in helping individuals who own small ventures such as this one. Hope this helps.
Small Business Insurance