Business owners should know the importance of insurance for their firms. The insurance covers the risks that the business faces and ensures that its financial liabilities do not cause a drain on the business capital or its ability to operate.
With the right insurance covering the business, the business owner can focus all your attention on taking the firm ahead towards your goals. Even if you take out a business owner’s insurance plan package, you should pay attention to what exactly is covered under it. There may be some critical insurance covers that you are missing out on, especially professional liability insurance.
The two main insurance types that often cause confusion among business owners are Professional Liability insurance and General Liability insurance. While they do both protect your business against business liabilities, they do so in significantly different ways.
The kind of risks each cover is different, and this is a very significant aspect to note and understand. While general liability covers you from claims made by third parties, professional liability insurance addresses the financial drain from lawsuits filed by your own clients.
Ideally, depending on your business risks, it would make sense for you to get both kinds to ensure that your business is thoroughly safeguarded against claims. It is imperative for you to understand exactly what each does and how they are different from each other. This helps you evaluate the risks your business faces and the need to be covered by these plans.
What does general liability insurance cover?
General liability insurance protects your business when claims are made that a third-party suffered physical injury or property damage owing somehow to your business.
Remember that a claim may be made against you if someone gets hurt during your daily operations as well. Let’s assume that a client walked into your office to meet with your team. While he was here, an accident occurred, and he slipped on a wet floor. He sustained injuries in the fall, and his laptop was damaged. The client may file a lawsuit against you, asking you to pay for medical treatment as well as a replacement for his laptop. In this case, he may claim that his accident occurred on your business premises, thus making your business liable.
A general liability policy also protects you when the client claims that using your product caused some injury or loss to them. Other claims that general insurance helps protect you from include:
- Medical cost if a third party is injured on your business premises/property owned by your business, such as a warehouse.
- Bodily injury claims from a third party stating that your business is responsible.
- Property damage caused by your business or your staff to a third party.
- Damage to third party’s reputation.
- Copyright infringement in your advertising, and so on.
General liability insurance is a must for all small business owners. It covers a range of legal claim possibilities and ensures that your business is protected against such contingencies. It is quite common to find general liability insurance bundled with other business insurance to make up a comprehensive package at an affordable rate.
What does professional liability insurance cover?
Professional liability insurance protects you when you face claims about your professional service. Such claims may also be made against the professional advice you give. Typically, there is no property damage possibility here, but the client claims that you are liable for a financial loss caused to them directly. For example, you are a financial consultant, and you offered advice to a client. The client sustained a loss from the said investment, and he files a claim against you for improper advice. Such claims are covered by your professional liability plan, also known as errors and omissions insurance.
Professional liability insurance can kick in when a client claims that you:
- Did not give the promised service.
- Your service was delayed or disrupted.
- You gave inaccurate/improper service.
- You were negligent.
- There were omissions/errors in your rendering of the service.
The professional liability cover takes care of the financial implications of such lawsuits filed against your firm.
One of the most critical aspects to know about professional liability insurance is that it allows you to safeguard your reputation. When a client files a lawsuit against you, the first thought most business owners have is about the financial drain that a legal battle would involve. The court fees, attorney fees, other costs associated with a lawsuit can be quite high. If you end up having to pay for the damages, those make an enormous dent in your business finances as well.