5 Reasons You Need Liability Coverage

By Lora Keleher , last updated December 12, 2011

Before you decide that it’s not worth the added expense, consider these five reasons you need liability coverage. Some professionals are legally required to carry liability coverage, while others seek the peace of mind the coverage provides. Depending on the type of liability coverage you purchase, you can protect yourself from negligence, malpractice, accidents that occur at your place of business, or damages caused by defective products.

It’s the Law

Certain professionals, such doctors, are legally required to carry a certain amount of malpractice insurance, depending on the state in which they practice. You should check your state laws before you open a business, because you could be subject to hefty fines, or even have your license revoked, if you don’t purchase an adequate insurance policy. Even if it’s not required, purchasing a professional liability policy can protect your assets if you’re sued, potentially saving you hundreds of thousands of dollars and allowing you to remain in business.

You Provide a Service

Professional liability insurance, also known as errors and omissions insurance, protects you in the event that a client sues you for unintentional errors, negligence, or malpractice. Although certain professionals, such as doctors, and attorneys, are more likely to encounter lawsuits, operating any type of service-base business posses some level of risk. For example, if you provide web design services, and a client’s website is hacked, then you can use your liability insurance to cover the cost of damages. Additionally, some clients may contractually require that you carry professional liability insurance as a condition of doing business with you.

You Sell a Product

Whether you manufacture a product, or simply distribute or sell it, you’re often responsible for that product’s safety. For example, if you sell a piece of electronic equipment that breaks or bursts causing damage, you could be held liable for it. By purchasing product liability insurance, you can continue to sell products without fear of a lawsuit. Insurance isn’t going to protect you if you knowingly sell a hazardous product, but it can protect you in the event that a normally safe product inadvertently causes damage.

Clients Visit Your Business

Imagine it’s a cold, winter day, and a client slips and falls outside your house or place of business. He or she could potentially sue you over injuries they sustained as a result of the accident. A client could also sue you if they slipped on a wet floor, tripped over a wire, or incurred any type of injury while on your premises. If an event like this occurs, and you purchased general liability coverage, then the insurer will reimburse you for any damages that you’re legally required to pay as a result of the accident. This kind of coverage is important if clients visit your home, or if your business involves traveling with equipment to public locations.

You Own Company Vehicles

Most states require that you purchase auto liability insurance, if you drive or own a company vehicle that other employees drive. Even if it’s not required in your state, driving an uninsured company vehicle can lead to risks, such as the other driver suing you for the total worth of your business. Personal auto insurance doesn’t typically cover business-related accidents, nor are auto accidents covered by general liability insurance policies.

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