Different Types of Liability Insurance for Small Businesses
Updated on November 30, 2019
Small businesses are exposed to many risks that liability insurance helps protect against. To meet different business’ insurance needs, insurers typically offer a range of liability insurance policies. Many people, including small business owners, have probably heard about a general liability policy—but this isn’t the only type of liability insurance coverage. There is actually a huge list of different types of liability insurance, so let’s check out some that may apply to your small business.
General Liability Insurance Policy
Most businesses should have a general liability policy. This policy is designed to protect against risks that most businesses are exposed to. Some of the items that a general liability policy will usually cover include the following:
- Injuries sustained by third parties on company property
- Libel and slander claims
- False advertising claims
Most general liability policies will cover these claims regardless of whether they are filed by an individual or multiple people as a class-action suit.
Commercial Auto Insurance
Businesses that own vehicles or rely on others’ vehicles for work-related purposes are often legally required to carry commercial auto insurance. The insurance normally must at least provide state-mandated minimum levels of coverage. In many cases, businesses elect to purchase additional coverage beyond what is legally required.
There are two types of commercial auto insurance policies for businesses.
A traditional commercial auto policy is like a personal policy that’s been adapted for a business’ particular situation. It combines liability insurance and property insurance coverages.
A hired and non-owned auto policy is used when businesses have employees drive their personal vehicles or rented vehicles for work. These policies extend coverage to vehicles that a business doesn’t own — but only when those vehicles are being used by the business’ employees.
Liquor Liability Insurance
Liquor liability insurance typically covers alcohol-related incidents, which are frequently excluded by general liability policies. A particular liquor liability policy may include protection for:
- Fights between intoxicated patrons
- Other forms of assault and battery
- DUI accidents caused by patrons who leave intoxicated
- Employees who drink while on the job
- Mental injuries suffered by witnesses of an incident
In many states, businesses that sell or serve alcohol need liquor liability insurance in order to obtain a liquor license. Businesses that offer alcohol at an occasional company event can purchase a policy that only covers an event (and thus has lower premiums).
Cyber Liability Insurance
Cyber liability insurance is a fairly young form of liability insurance, but it’s quickly becoming increasingly important as online threats proliferate. While commercial property policies protect physical property and general liability policies protect against many physical risks, cyber policies help safeguard businesses’ digital data from digital threats.
Because cyber policies are still new, they haven’t yet been standardized as much as general liability policies. A policy might cover data breaches, successful hacks, and cyber extortion, among other risks.
Businesses that manage customers’ financial accounts or medical details, of course, should have a cyber policy. Even businesses that have customers’ credit cards or contact information may want the security that this type of coverage offers.
Product Liability Insurance
Product liability insurance typically covers damage and injuries caused by products that a business makes, transports or sells. Some general liability policies offer a little coverage for product-related damage and injury claims, but general liability policies’ product liability protections are frequently limited. Businesses will likely get more protections through product liability policies, so this is a good add-on to your general liability policy if your small business centers around the products it produces.
Product liability insurance isn’t just for manufacturers, although they are great candidates for this type of liability insurance. Distributors, wholesalers, retailers and even transporters can benefit from the protections offered, because they may be held responsible for incidents if products are found to have been damaged while in their care.
Directors and Officers Liability Insurance
Directors and officers are sometimes held to higher standards than other employees, and they may be sued or fined if they make an error. Directors and officers liability insurance covers a range of errors that directors and officers may make. Policies usually do not cover illegal activities or poor business decisions.
Although directors and officers liability insurance covers directors and officers as individuals, these policies are often purchased by businesses. Businesses will supply their leaders with these coverages because leaders are exposed to the additional risks by assuming roles as directors or officers.
Get the Liability Insurance Your Small Business Needs
These are just some of the liability insurance policies available to small businesses that you can get to cover your small business from problems that may arise. eHealth aims to give you resources to learn about all your insurance needs, even beyond health insurance.
This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.