How Much Does Liability Insurance Cost for a Small Business?
Published On: March 12, 2021
Commercial insurance is an essential piece of protecting your small business’s operations and employees against potential liabilities. By understanding your liability insurance options and purchasing the right policies, you can protect your assets and your employees against legal claims and other damages.
The cost of liability insurance for a small business varies depending on your location and industry, along with other factors such as your business size, revenue, deductibles and coverage limits, and your claims history.
Generally, your industry has the largest impact on liability insurance premium costs. High-risk industries typically pay higher premiums, while low-risk industries usually pay lower rates.
In this post, we discuss the different types of liability insurance, the cost of liability insurance for small businesses, and how much coverage your company needs.
What is liability insurance?
Customers may claim they were harmed by your company due to service errors, property malfunctions, defective products, employee negligence or other incidents.
General liability insurance, also called commercial liability insurance or business liability insurance, provides coverage to small businesses for claims related to bodily injuries, medical payments, advertising injuries and more.
Liability insurance pays damages for these types of claims, if your company is found liable. It also covers related legal defense expenses and medical bills for the people injured by your company or on your property.
For example, if a customer falls and gets hurt while at your business location, liability insurance can pay for their medical bills and legal claims, up to a limit set forth in your policy.
Here are the three main types of small business liability insurance:
- General liability insurance protects your business from claims regarding third-party claims for injury or property damage. Small business liability insurance typically also covers administrative costs, court costs, judgments and settlements for covered claims.
- Product liability insurance protects your company from claims due to injuries from using your products. This coverage allows people and other businesses to seek compensation from product sellers who make faulty products or provide inadequate warnings about the proper use of the products.
- Professional liability insurance covers your business and employees for any damages that occur due to their negligence.
Understanding the cost of small business liability insurance
The cost of small business liability insurance depends on the type of business, number of employees, deductibles and coverage limits, and optional policy coverages. The price you pay as an employer factors in many variables to create a premium that represents the risk you present to the insurance carrier.
While location and industry greatly affect the cost of general liability insurance premiums, there are many other factors that lead to different prices, even within the same state and line of work.
In most cases, companies with more employees pay higher premiums for professional liability coverage. Likewise, the more customers your business has, the more at risk you are for claims, which could impact your coverage costs.
Since general liability insurance covers third-party property damage, small businesses working at clients’ properties typically pay more for policies. For this reason, construction, contracting, cleaning and landscaping businesses often have some of the highest general liability costs.
Your general liability premium also depends on the limits of your coverage. Higher limits for claim payouts generally means your policy will be more expensive. Most small businesses use general liability policies with a per million occurrence limit.
Sometimes you can get discounts on policies by bundling them, most commonly done through a business owner's policy (BOP). Many small businesses with low risks are eligible for a BOP that combines general liability insurance and commercial property insurance to save money.
Most major insurance carriers offer general liability insurance, but they do not all specialize in small businesses. If you need help deciding which insurance you need, how much coverage is appropriate, or what optional coverage is worth extra costs, consider using an insurance broker who knows your industry and can get you the coverage that you need at the best rates.
How much liability insurance does my business need?
Every business needs to have liability insurance, from small home-based startups to national enterprises. A vast amount of potential business insurance claims fall under the umbrella of general liability, making it one of the most common and most important.
Liability coverage protects your company from many types of legal damages – often paying for itself when litigation occurs. In fact, between 36% and 53% of small businesses face litigation in any given year, according to the SBA, making this coverage a must. Without liability insurance coverage, your business is on the hook for these costs out of pocket.
Insurance requirements vary by state, so visit your state’s commerce website and speak with insurance brokers to understand how much coverage your business needs. State laws generally do not require general liability insurance, but forgoing coverage puts your business at serious financial risk.
General liability insurance is not one-size-fits-all, and your business can choose policies with premiums and limits that match your industry’s appropriate risk level. Plus, you can modify liability policies by adding endorsements for specific risks, including product liability insurance, non-owned auto insurance and liquor liability insurance types of coverages.
Here are some of the types of businesses that should consider buying general liability insurance:
Businesses with a store or office that is open to the public, clients or vendors.
Businesses that handle or work near client property.
Businesses that advertise or create marketing materials for others.
Businesses with larger corporate clients.
Corporate clients often require you to have liability insurance because it offers reassurance about your business’s viability when things go wrong. General liability insurance compensates you for many common lawsuits, so clients know your business's finances are secure.
Researching coverage terms and prices – and speaking to the right insurance experts – will lead you to policies and insurance carriers that make the most sense for your company.
Senior Vice President of Strategy and Product, Mployer Advisor