Liability Insurance for Small Business Made Simple

by Neal Frankle, CFP ®

Liability insurance for small business is a must if you have your own shop. When you own a small business, you have responsibility for your customers, staff and yourself. But you are also responsible for what happens when people use your product or service or set foot on your premises. Successful business owners understand this. When owners ignore this issue, they usually don’t stay business owners for long. So if you are interested in being self-employed (or staying in business), this post is for you.

Some people think they can avoid the expense of liability insurance if they structure the business as an LLC.Liability Insurance for Small Business

Wrong. I’m not a lawyer, but regardless of how you set your business up, you need this coverage. Personal liability extends to owners when they personally guarantee loans, have personally injured someone or acted improperly.

Over 78% of all U.S. businesses are structured as a partnership or sole proprietorship, according to For the majority of small business owners, this form of ownership puts your business and personal liabilities at risk. Owning business liability insurance protects both your business and personal life from financial ruin. There is so much at stake and the cost of this business insurance coverage is so inexpensive. You’re really not doing yourself any favors if you don’t protect yourself by having business liability insurance – regardless of how your business is structured.

What does business liability insurance cover?

If you get sued for personal injury or because of damage to property, you’re covered for the claim and the legal defense costs with most policies.

In many cases, you can buy a generic policy known as General Liability Insurance. This will provide the benefits mentioned above. If you provide professional services, you should consider buying errors and omissions insurance in addition to the general liability policy. If you manufacturer a product, you should protect yourself with a product liability insurance policy.

How to make sure you have the right policies and pay the lowest premium?

First, check some of the links I’ve placed above. They provide strategies to help get the best coverage at the lowest cost. Also, never rely on your agent to get you the lowest price. The reality is, your agent doesn’t work for you. He or she works for the company they represent. The absolute best way to get the most comprehensive coverage at the lowest cost is to meet with at least three agents. Make sure the agents understand the kind of business you are in and have clients in your industry. When the agent understands that she is competing for business, she will understand that she’ll have to earn your business. By doing this, I don’t always go with the lowest-cost provider. I go with the agent that demonstrates he or she understands the risks my business faces.

What kind of liability insurance do you have for your business? How did you decide what to buy? What was your process?



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{ 2 comments… read them below or add one }

Larry Briggs March 21, 2012 at 1:51 PM

I will be starting up a new Heating & Air-Conditioning business May of this year and will need business liability insurance. The business will be a single member LLC with me as the only employee. I will be working in Boulder County. I will be servicing primarily residential customers. There may be some commercial customers in the future. My services will include maintenance, repair and replacement of heating and air-conditioning systems including any peripheral equipment such as filtration, humidification, fresh-air ventilation and control systems.
I have been actively working in this industry for 10 years and have EPA and NATE certifications. I also recently passed the Master Mechanical Contractors License N29 Exam and will be applying for a business license.
Because of insurance costs I have not yet decided whether or not to include hot water hydronic systems (boilers) in my services. Therefore I would like 2 bids, one to cover boiler service and one without boiler service.
Of course, it is difficult to estimate gross income for the first year but I hope it would be at least $50,000.
If you need further information to be able to provide accurate insurance quotes feel free to call or email me.
Thank you,
Larry Briggs


JT McGee February 22, 2011 at 9:38 AM

Liability for mine is covered as an additional clause in a general umbrella. A lot of people choose to add it onto their homeowners as an additional rider, but obviously this works only for sole proprietorships.

I’m of the mind that its worth having even if you have 0 assets. Going to court/paying for court/dealing with a financial headache just isn’t worth the few bucks a month a general liability insurance rider costs.


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