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Most businesses, even small ones, in the United States are best served with some form of liability insurance. Liability insurance protects the proprietors and members of the businesses from lawsuits that may arise from malpractice toward an employee or client. It is a common misconception that LLC’s and corporations require insurance because of their legal properties, but this is not the case. Incorporation only protects the proprietors from certain liabilities by transferring them to the company (even then the members of the company are not fully protected from liability, a member can still be held responsible for personal illegal or injurious acts). The company or corporation is still an entity that needs protection in the event of unfortunate circumstances.
Liability insurance typically comes in three forms: commercial general, professional and product. Commercial general liability insurance covers injuries, property damage and advertising claims. This is the most commonly used form of business insurance and is typically the only kind of small business liability insurance one will need. Professional liability insurance, also known as errors and omissions (E&O), covers errors, omissions, negligence and malpractice, and may be a requirement for practice depending on the profession and state. Laws are generally strictest on doctors and technology consultants. Product liability insurance insures the user from lawsuits that may arise from injuries resulting from product use, and varies greatly depending on the product itself.
Another common kind of liability insurance is worker’s compensation. Worker’s comp insures the company for work-related injuries and illnesses that happen in the workplace and protect the company from lawsuits. Like E&O insurance, worker’s comp is often a legal requirement of the state in which the company does business. Most large businesses bundle their liabilities into umbrella insurance, which insures a number of liabilities for a small price.
Depending on your small business, liability insurance may actually not be necessary. Most writers and teachers, for example, carry very little risk in their practices.
Small business liability insurance can be easily purchased online. An excellent service for this is Netquote, which offers comparisons of a number of business insurers, as well as health, home and auto. As always, read forums, blogs, check the insurer’s status on JD Power & Associates and possibly your state’s Department of Insurance to get a good idea of the quality of your insurer.