There are only a few types of business insurance that are actually required under federal law; workers’ compensation, disability, and unemployment. Certain states might have additional requirements for operating in their jurisdiction, but those three are the main ones that every business is required by law to have (no matter where they’re located).
General liability insurance isn’t required under federal law, however, it’s one of the most valuable types of insurance a company can have. This is especially true in the United States, where lawsuit culture is as rampant as gun culture. The market capacity of the liability insurance industry is valued at over three billion dollars (and the US is responsible for a large percentage of that total capacity).
You should realize by now the importance of having liability insurance, but how do you start the process? Are there different types of coverages your business is going to need? What about premium costs? Does your business have the budget for the coverage it requires? All pertinent questions and all of them are answered in the following sections.
Liability Basics: Why Your Business Needs Protection
There are more than one million registered attorneys in the US, and more than 40 million lawsuits file every single year (a lot of which are filed against small businesses). What does this mean for your business? Well, if you haven’t already figured it out – it means that you’re vulnerable to lawsuits.
No matter what industry you’re in, where you’re located, or how large your company is – there is an inherent level of risk involved in operating a business in the US. Luckily, general liability insurance exists for this very reason (i.e. to protect your business from lawsuits).
In the most simple terms possible; general liability insurance provides your business with protection from lawsuits filed against it by third parties (e.g. customers, vendors, or anyone else affected by some aspect of your business’s operation). If your business operates in a particularly risk-prone industry, it will need to have more coverage than a business without the same level of risk.
The majority of small businesses should have a general liability policy (whether you sell products or provide services). In regards to service-related businesses, errors and omissions insurance is another common type of insurance (used to protect businesses from claims of malpractice and/or negligent service). Some states require that service-based businesses have liability and/or errors and omissions insurance.
General Liability Quotes: 3 Aspects to Consider
There are four main things to look out for when comparing quotes between insurers (all of which are covered below). First-time business owners have an especially difficult time trying to decipher insurance quotes.
The sections posted below provide a brief overview of the three main aspects of business insurance quotes (in regards to BOP/liability policies).
There are types of insurance companies: those that are admitted under the state’s insurance department and those that are not. What’s the difference between the two?
Admitted insurance companies are required to follow specific state regulations (in exchange for having the state’s backing should they be unable to financially process a claim).
Non-admitted companies aren’t required to follow state regulations, which means they need to pay higher fees (which typically translates to higher premiums for their customers).
Carrier Rating System
However, the one thing that’s more important than whether or not an insurer is admitted, is what their actual carrier rating is. This rating can range from A all the way to F (similar to school grades). You should always look for an insurance company with the highest rating possible.
Equally as important as finding an insurance provider with a high carrier rating, is finding one that can provide you with the most coverage possible (for an affordable price). Coverage/liability limits are one of the most important aspects to consider when shopping around for a policy.
You can gain a general sense of a policy’s coverage limits by reviewing the quote, but you should also consult with the broker as well (who can provide a deeper level of insight). Generally speaking, policies with minimal coverage typically aren’t as expensive as those with higher levels of coverage.
One way to lower premiums and simultaneously increase your coverage limits is by purchasing an umbrella policy (however this largely depends on which company your policy is under). Keep in mind that different companies have different policies, and not all of them may offer the same level of coverage as the next.