Business Liability Insurance Definition

Business Liability Insurance is a policy that protects a company from financial losses resulting from legal claims or lawsuits filed by third parties for injury, property damage, or other liabilities arising in the course of business operations.

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Learn business liability insurance’s business definition and why business liability insurance may be a necessity to protect your company. 

Business Liability Insurance Definition

Definition of business liability insurance: an insurance policy that covers claims against your company for: 

  • Bodily injuries
  • Property damage
  • Personal injuries
  • Advertising injuries (like libel and slander) 

It may also cover damages you caused to your landlord’s property.

These policies also cover the cost of a lawsuit, including: 

  • Attorney fees
  • Court costs
  • Expert witness fees
  • The cost of a settlement or judgment

Business liability insurance is an essential form of protection for your business.

Other Names for Business Liability Insurance  

Business liability insurance is also called general liability insurance because it covers general claims against your business. 

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Business Liability Insurance — Examples of Covered Issues

Your policy usually will cover the following damages:

  • Customer injuries
  • Accidental damage to customer property
  • Financial harm to clients based on mistakes
  • Advertising errors (sometimes including copyright infringement)

Business liability insurance is extra important if your company welcomes visitors or serves clients in their homes. 

Business Liability Insurance Benefits

What are business liability insurance’s main benefits? There are many.

A small business owner or sole proprietor may lose their business and personal property if forced to defend themselves in an expensive lawsuit. One of business liability insurance’s advantages is that it offers protection to this kind of legal entity.

Commercial property owners may also require you to provide a certificate of liability insurance before you can sign a lease. 

Clients may expect you to carry business liability insurance, meaning they will not enter into a contract with your business until you show proof of coverage.

Other Types of Liability Insurance

Certain professional associations or state laws may require you to carry specific types of liability insurance in addition to, or instead of, general liability insurance. You may need one or more of these policies to protect yourself and your business, though be sure to ask for exclusions if the policies overlap.

  • Professional liability insurance (also called errors and omissions insurance or malpractice insurance) — covers real estate agents, attorneys, medical and dental professionals, insurance agents, etc. when they are sued for making professional mistakes or omissions.
  • Workers’ compensation insurance (which may include employer’s liability insurance) — covers injuries to workers on the job and lawsuits against employers.
  • Commercial automotive insurance — provides coverage when a vehicle owned by the business is involved in an accident.
  • Commercial property insurance — protects your business when its property is lost to theft, fire, vandalism, and other risks.
  • Cyber liability insurance — covers costs related to data breaches and cyberattacks.
  • Commercial umbrella insurance — provides supplemental coverage on top of your general liability insurance once its policy limits have been reached.

Always read the fine print and talk to your insurance professional to make sure you obtain the right coverage for your business. 

Business Liability Insurance Disadvantages

There are few downsides to having the peace of mind offered by business liability insurance. But it can be expensive. Prices vary based on factors such as:

  • The type of business
  • Limits and deductibles
  • Location
  • Number of employees 
  • Risks inherent in the industry

In other words, if you run an amusement park in New York City, your insurance premiums will be higher than those of a bakery in Des Moines.

If money is tight, there may be ways to reduce insurance costs. For example, a business owner policy combines general liability and property insurance at a lower premium. 

Other Considerations

Most business liability insurance policies contain coverage limits for each occurrence and in the aggregate (the total amount the policy will pay within a policy period). It’s important to look at these amounts when determining whether the policy provides the coverage your business needs.

Summary

A business liability insurance policy helps cover the cost of bodily injury, property damage, personal injury, and advertising injury claims and lawsuits. 

We Can Help

Even good business liability insurance may not protect all your personal assets if you have a sole proprietorship and get sued. With services starting at $49, we can help you protect yourself by setting up a limited liability company or corporation today with our Business Formation Services.

Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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