Business Liability Insurance

Small business liability insurance will protect your business assets in the event you are sued. These days, with lawsuits clogging the courts, you'll want to maintain a proper amount of business liability insurance to protect the business you've worked so hard to build. Your company can be sued for something it did — or even didn't do — that resulted in injury or property damage to someone else.

Business liability insurance will not only pay the cost of the damages but also the legal fees and other costs associated with your defense in a lawsuit. The expenses of defending yourself against such claims in court can be substantial, regardless of whether or not the lawsuit has merit.

However, business liability insurance will not protect you against claims arising from nonperformance of a contract, wrongful termination of employees, sexual harassment, or race and gender lawsuits. Usually a surety bond is taken out as performance insurance. Employment practices liability insurance (EPLI) protects your business against employment-related claims, such as sexual harassment.

Many small businesses have difficulty figuring out how much commercial or business liability insurance they need. There are some guidelines to consider, but no standard formula. Determining the amount of liability insurance to buy is an important task, since the sky's the limit on lawsuits. You could use a recent liability settlement in an industry related to yours as a guide, or you could base the amount on your business' total assets. Either way, discuss it with your agent and check for recommendations from your trade association.

Some occupational licenses might require a set amount of business liability insurance. If you rent your business property, check your lease, as it could require a set amount of liability. Then buy what you can reasonably afford, because the cost of the insurance will be far less than the cost of a lawsuit.