What is Liability Insurance?

For many, understanding insurance can be quite frustrating. Especially knowing what kind to get, how much coverage, and whether or not we’re paying too much for too little. But it shouldn’t have to be this way, which is why we have created this guide to understanding liability insurance. From professional, to commercial to business, we have all your bases covered so that when it comes time to finally buy, you won’t feel so unsteady.

What is Liability Insurance?

To start, we want to give you a better understanding of just what liability insurance is. Just because someone might mention that you should have it, doesn’t necessarily mean that you know exactly what it is your spending your money on.

In layman’s terms, liability insurance is protection from any lawsuit or claim that may arise concerning a liability that you own or possess. Or, in a more in-depth understanding, it is risk financing in order to protect you (the insured) from any risks of liabilities (things for which you are responsible for, such as a debt/financial obligation or property) that might arise from a lawsuit or claim. Liability insurance is meant to protect you in the occurrence that you are sued for claims which fall within the coverage of your insurance policy.

This kind of insurance, whether for your business, property (such as your car), or self, is meant to offer protection from third party insurance claims. Generally, this means that payment is not made to you the insured but rather to the person who has filed the claim. Typically, these are people who are suffering any loss or damage but are not one of the party on the insurance contract.

In terms of auto insurance, liability is required no matter which state you live in. Auto insurance liability involves the two components of property damage and bodily injury. When it comes to bodily injury, liability coverage protects you if you are the one responsible for any accident that hurts another individual. Rather than you having to pay out of pocket for any of the individual’s medical bills, consequent loss of income or emergency aid like an ambulance at the scene, bodily injury liability will help cover the costs.

As for property damage liability coverage, this coverage will take care of any damage you personally might cause to another’s property (such as a car, building, storefront, etc.). Property damage will help pay for repair or replacement cost, structural damage, and/or any possible vehicle repair or replacement. On top of this, liability coverage with auto insurance can also protect you and your assets if you are eventually sued due to an accident.

The difference between auto and business liability insurance is that often, auto insurance liability is taken care of per accident and per person. Meaning the insurance company will cover ensuing costs up to a certain amount for each individual injured in an accident or up to a certain amount for an accident. Because of this you might see a policy that has a top payment of $50,000 per person or a top payment of $100,000 per accident

For business or professional insurance, liability insurance is part of the coverage included in the policy and it will only cover the risk of being sued due to negligence or strict liability torts. This is why you often hear organizations, companies or even schools comment on activities or buildings as not being doable on the off chance that someone is injured, in which case they are then liable for any damage done to the person (e.g. if a building isn’t up to code and something breaks or falls injuring a person the company or building owner could be sued for medical bills by the injured person).

When liability insurance is purchased (often as part of a business, commercial, or auto insurance policy), you are seeking protection from an insurance company to help defend you if someone were to sue you. Liability insurance companies have three roles if the time ever comes for you to seek their aid. The first is to defend. At the onset of a claim or lawsuit, the insurer has three options in which to assist: 1) defend, 2) pursue a declaratory judgement of no coverage, or 3) refuse the first two options.

Once one of these options is settled, the insurer’s (insurance company) second role is to indemnify. Meaning that they will then pay all sums up to set limit for which you are held liable. The third role of the insurer is then to settle reasonable claims. This third role comes about if the settlement of the lawsuit equals or exceeds the insurance policy limit. If this is the case, the insurer can decide to not settle, therefore not paying the policy limit. This is where it tends to get tricky as if the company decides to go to trial leaving the insurer at a loss as they will either have to pay the policy limit if the insured (you) lose, or you win and the insurer is then left without any liability.

Because of the risk, most insurance companies will settle reasonably clear claims to avoid paying on the policy. According to the standard judicial test, an insurance company will settle a claim if a reasonable insurer would have settled it.

Professional Liability Insurance

Professional liability insurance is more often known as E&O — Errors and Omissions. This kind of insurance protects professional service- and advice-giving companies and individuals (i.e. medical professionals, lawyers, brokers, and even insurance agents) from having to bear the entire cost of damages awarded in such a lawsuit and defending a negligence claim by a client. Basically, if a professional fails to use their skills to the degree expected of them, they can be held responsible for any harm they might have caused a client (person or business). If such a lawsuit is filed, professional liability insurance covers any financial loss caused by, any error or omission in the service or product sold by, and any alleged failure to perform on the part of you — the policyholder.

These kind of causes for legal action are ones that are generally not covered in a general liability insurance policy. Professional liability insurance can also cover any defense costs that may arise, this also includes when legal action ends up being groundless. Often times, professional liability is actually required by law in some regions for particular professions such as medical and legal.

Very often, professional liability insurance is also necessary for professionals who operate and own their own businesses.

What is Commercial Insurance?

Commercial liability insurance does not differ very greatly from other liability insurances. Though there are no definites of injuries and damages that the commercial insurance covers. Overall, the simplest commercial insurance definitions include that this kind of insurance is generally the most basic and cheap business insurance out there. It is chiefly designed for the most common claims and casts a wide net so any consequential claims won’t cause you to lose any of your assets. Many companies will offer different kinds of coverage depending upon your policy, but coverage can include employment practices liability, automatic additional insured, personal and advertising injury, medical expenses, premises and operations and tenant’s liability, and defense costs. Sometimes companies will combine commercial insurance with property insurance to cover any theft or damage of business assets. This often saves money on both kinds of coverage.

What is Business Insurance?

Business insurance is once again a way to protect yourself and your assets (your business) from any lawsuits or risks. Generally, liability insurance is part of the coverage within business insurance. Business insurance policies come in several different forms depending upon the coverage needed. Once again, like all insurance business insurance rates include several factors to determine what coverage you will need exactly and the rate which you will pay. These factors include what kind of business you run, whether you run it from home or a commercial building, and whether or not you have employees and the size.

Business insurance coverage can include property insurance, liability insurance, commercial auto, workers’ compensation, business interruption, disability insurance, health and life insurance. Most often, if you own a business you will need and want business insurance.

Liability Insurance Cost

Like most insurance policies, liability insurance costs are dependent on several factors. It also depends upon whether or not you are getting general, commercial, or professional liability. Most importantly it can depend on the business size and type of business. But for a general idea, liability insurance for small businesses (about two employees, one to five programmers, with $25,000 - $1,000,000 in revenue annually) can have an annual premium ranging from $500 to $900. The total coverage limit per occurrence would be about $1 million with an annual aggregate of $2 million. For medical expenses coverage limit it would be about $10,000; coverage for damage to rented premises at about $300,000. On top of all of this, the policy would include personal and advertising coverage and completed products coverage.

These costs don’t greatly change if instead you seek commercial liability insurance as an independent contractor. The annual premium can range from $425 to $900 with a similar total coverage limit per occurrence and annual aggregate and coverage for damage rented premises and medical expenses coverage. However, commercial insurance companies will also include business property coverage, business computer and media coverage, and laptop computer coverage in their liability policies.

Of course, as the company gets larger, the liability insurance cost rises. For a large consulting firm (six to ten employees, 10 to 50 programmers, with about $3 to $10 million in revenue annually) the annual premium is about $3,646 but the coverage limit per occurrence and annual aggregate remain the same. The best option for seeing how much liability insurance will cost you and your assets is to get commercial insurance quotes or other liability insurance quotes from different companies. Like all insurance rates it is best to do enough research to make sure you are getting the right and enough coverage for the right price.

How Much is Business Insurance?

The cost of business insurance really does not vary greatly from other forms of liability insurance rates. Like other liability insurance rates, business insurance depends on the size and type of the organization or company. For a sole proprietor the annual premium is around $500 a year, where for a small consulting firm the annual premium is closer to $3,000. Costs can also vary depending upon what kind of risks the business might encounter.

As mentioned before, when it comes to business, commercial, or any form of liability insurance you should do a good amount of research. There are many companies out there who offer insurance but depending upon your organization, company or assets sometimes what is being offered isn’t exactly what you need. Be sure to do a fair amount of digging around and compare insurance quotes to get the right coverage for your needs.