Businesses are liable for nearly everything they do. Companies are also responsible for each consumer experience and outcome.
While not every failed experience will result in paying out of pocket, there are numerous instances where a business is at fault – and without the correct type of liability insurance, they will have to pay out of pocket. With the right liability insurance, companies can operate knowing they’re covered if things go wrong.
Startups are a target, often making mistakes along the initial journey as they find their feet in crowded markets. Remember, businesses can be liable for mistakes, so what exactly is liability insurance, and what tips are out there to help guide startups towards the right insurance policy? Let’s explore.
What’s Liability Insurance?
Before we get started with the article, it’s worth talking about liability insurance and why businesses need it. There are multiple definitions, but essentially, liability insurance is a type of policy that protects companies from having to pay out of their own pocket in specific instances.
Without insurance, medical and legal bills, for example, would be the expense of the brand. We see liability insurance in every aspect of life, not just business – condo, landlord, ATV, and boat policies are all examples of liability insurance policies.
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There are countless variations of liability insurance that businesses should explore. Some are what the law requires a business to have, and some are industry-specific but not necessarily required by law, but will help companies handle various scenarios, like cybercrime.
Consider The Level Of Coverage Needed
Tip number one is to consider the level of coverage your brand needs. Each type of insurance policy will have different levels of coverage. For example, with product liability insurance – discussed in the next section – you might be liable for a product causing harm to a person but not if it damages property.
While there are more general policies that cover businesses broadly, it’s essential to research industry-specific policies that cover products, services, and companies more generally.
A top tip before taking out an insurance policy is to complete industry research to identify relevant risks and research the various policies that provide the highest coverage for each one.
Public and Product Liability Are Essential For All Brands
Public and product liability insurance policies are, without a doubt, essential for all brands. In many states in the US, both are required by law.
Professional liability insurance also falls close to these two policies – but the main difference is public liability insurance covers claims made against a business by clients, visitors, or people from the public. Professional liability insurance covers the cost of errors you make in your job.
For example, most doctors and dentists are required, by law, to have some level of professional liability, and their role can directly affect someone’s life if they were to make an error.
Public liability insurance claims are more likely to relate to falling over in a store, for example, rather than someone’s job role impacting a member of the public’s quality of life. In some states, such as Colorado, Connecticut, and Kansas, professional liability is a requirement by law.
Product liability is a cushion for brands that sell products to consumers. This insurance policy will cover everything from faulty products to products that consumers claim aren’t what they were like in the advert.
It’s not a requirement by law, but studies reveal that product claims against a business are one of the most common claims, and without the insurance to payout, startups can find themselves in financial hot waters.
Consider How Your Insurance Needs May Change
The insurance policies you start with won’t be the same in five years. The needs of the business change, new products or services come out of the pipework, and businesses must adapt policies if they want to be covered.
It’s essential to constantly evaluate and update insurance policies; so your startup has the best cover. Many brands find themselves in hot water because they fail to notify insurers of updates to the business that voids the cover.
For example, you may take out product insurance that covers a range of different products, but five years down the line, your products might be completely unique and carry a different set of risks.
Companies also need to consider how the needs of the company change. Many startups won’t establish with employees: but will instead start to pick them up as time goes on.
Two types of insurance policies protect businesses and their employees that are also required by law – workers’ compensation and unemployment insurance. Workers’ compensation pays out for employees who can’t work because of injuries or illnesses picked up while at work.
Unemployment policies are governed by federal law that requires businesses to pay for unemployment insurance with money paid through payroll taxes. Each state will also have its own unemployment program.
Research Insurance Requirements Mandated By State Laws
There are lots of things companies should and shouldn’t do when it comes to insurance. One of the things every brand must do is research the various insurance requirements that law states businesses must meet.
For example, it’s a legal requirement to have insurance for selling firearms or the unemployment insurance mentioned above. Countless government documents and online self-help articles will guide brands toward the right insurance policies for their needs. Google business insurance requirements by law to get started.
Research The Industry-Specific Requirements
Researching industry-specific requirements are essential. For example, you could have product liability insurance; but that might not cover firearm sales. We’ve touched on it briefly, but researching industry-specific requirements can save brands tons of money.
While it’s not against the law to neglect some insurance policies, it can ultimately be detrimental to startups and small businesses, in particular, that may not have the funds to cover payouts.
Insurance can be confusing. Tons of self-help guides online, like this one, will guide you towards the right policies for your business needs.
It’s essential to get to grips with the terminology, levels of coverage, and specific risks of your business so you can effectively identify your own needs.