Liability insurance can be a necessary evil for running your own business. But sometimes it feels like it can do more harm than good. Liability insurance costs money and lots of it. But it's something that every entrepreneur has to have on the off chance.
If Something goes wrong during the course of their business activities. And they end up facing an expensive lawsuit (or many expensive lawsuits).
Plus, liability insurance isn't even guaranteed to cover your legal costs. In the event that you're sued! Here are 9 ways liability insurance can suck the life out of you as an entrepreneur.
Choosing the Right Liability Insurance Company
The first thing to think about when you're getting your liability insurance. It is which company you're going to go with. If you decide to go with a large corporation. That's fine but make sure they have experience in your specific industry. Because they have some good marketing.
That doesn't mean that their rates are going to be any better than other companies. That specializes in your industry. Make sure you do your research and ask questions! Paying Too Much: When it comes to time to actually sign up for your liability insurance.
There will always be a part where it asks for how much coverage you want, there will also be a number next to that. Don't assume 5 million is fine without doing some math on what kind of business you actually run.
Personal Injury Protection (PIP)
In every state in America, liability insurance is a must-have for your car. So why aren't all states required to offer you a no-fault?
Personal Injury Protection (PIP) option? That's right—in almost half of U.S. states, you can have no option but to sue someone and wait years for compensation.
If you're injured in an accident that wasn't your fault! Learn more about how PIP can help protect yourself. And your family from medical bills if you're ever in an accident.
Other Important Coverage In Liability Insurance
Liability insurance is important. But other types of coverage you might want to consider. Including personal umbrella liability insurance and life insurance. As a small business owner, if someone gets hurt on your property.
Or if your employees get killed in an accident while working for you, you may have to pay compensation.
Liability insurance protects your assets. Such as bank accounts and real estate holdings.
(And many children's college funds) from being to pay for damages. Personal umbrella liability extra claims above what is full-filled by basic liability policies.
For example, if a jury awards $1 million in compensatory damages. Against a company and its executives, basic liability insurance only covers $500,000. that's where personal umbrella coverage kicks in -- up to an extra!
How Much To Buy In Liability Insurance Policy
Think about how much you need to cover your assets. One common recommendation is at least enough liability insurance. To cover three times your annual salary for each employee.
Working for you or $500,000 per occurrence, whichever is greater. For example, if you make $40,000 per year and have two employees working for you, get a policy with a $120,000 limit.
That way, if someone sues you for $100,000 in damages. Because they trip over your dog in your office lobby (and win), you’ll be safe. The more assets you have that could get affected by a lawsuit.
Like pricey equipment or real estate—the more liability coverage you should buy.
#5 - How Much to Buy: Ask yourself what kind of exposure do I have? If it's me running my business out of my home office then I don't need any liability insurance.
But what happens when my business starts growing? What happens when I hire other people to work for me? What happens when we start buying all kinds of expensive equipment? Like computers and cameras?
What About The Other Car in Liability Insurance?
Many drivers are so focused on their liability insurance. That they forget about another type: property damage coverage. This may not be as important to you.
If you have comprehensive collision coverage (and a very good, high deductible). But if you're in an accident where someone’s car has broken down. Your insurance company will likely cover your gap payment.
But most drivers don't know if there's a gap or how big it can be—often up to $5,000 per accident depending on your deductible. Before buying liability insurance, talk with an agent.
About adding property damage coverage. And what kind of deductible fits best with your budget? We've seen some cases where drivers were better off purchasing it. Then carrying nothing at all!
Is My Home Business Covered?
If you own a home-based business and you get hit with a lawsuit, is your homeowner's insurance going to cover it? Most likely not. Business policies are different from standard homeowner's policies.
So be sure to check whether yours will work for your business needs. When selecting liability insurance for your home-based business. It's important to make sure that your policy includes adequate coverage.
For both general and professional liability, insurance claims. Most standard homeowners' policies only protect personal assets from lawsuits. They don't cover other types of damages or losses sustained by running a small business at home.
How Do I Know My Limits In Liability Insurance?
Most people, when they’re buying liability insurance for their small business. They have no idea what it covers. There are a lot of terms in a standard liability insurance policy. That might as well be Greek to you.
Terms like product-completed operations and occurrence.
To help clear up confusion on your policy, ask yourself questions like: How many employees do I have? What percentage of my gross income comes from selling products and services? Do I have lots of dangerous equipment or vehicles?
Am I located in an area with frequent natural disasters or high crime rates? When you know your limits—and there are plenty out there—you can shop for liability insurance that fits.
What About Uninsured Motorist Coverage?
Uninsured motorist coverage pays for injuries. Caused by a driver who doesn't have liability insurance. If you live in a state that requires it, you should buy uninsured motorist coverage.
Yet, make sure your car is under your policy's uninsured motorist coverage. If you're driving someone else's car without your own policy in place. If not, then injuries may not get any compensation. #7 - Liability Coverage and Excess Liability Coverage.
There are two types of liability coverage: injury and property damage. Liability insurance covers people injured or property damaged due to an accident. Caused by you or your vehicle (or both). In general, the injury will cover medical expenses and lost wages.
While property damage will cover repair costs to other vehicles. Or objects involved in an accident. When shopping for auto insurance, most states need at least $100,000 per person. /$300,000 per accident injury.
Protection and $50,000 per incident/per occurrence property damage protection. Some states also need extra personal injury protection. (PIP) which can include lost wages from missing work as well as funeral expenses if applicable.
How Long Should I Carry Coverage?
Unfortunately, even a minuscule liability claim can end up. It costs you thousands in legal fees. Because of that, it’s always a good idea to carry liability coverage for as long as you can. You want to hold onto your liability insurance until retirement.
But if it makes financial sense for you to drop coverage sooner, don’t feel guilty about doing so.