One thing I have a hard time convincing my clients about is having insurance. The number one reason my clients don’t have it, is the cost. The number two reason, they do not feel they have anything to lose. Insurance is expensive and you do have a lot to lose. The thought that if someone sued you, they would get nothing is a misconception of many small business owners.
When I explain to small business owners the costs of litigation, they seem surprised. Even with the technological advances, lawsuits are expensive. And, with the ease of access to the courts, more people are willing to test the system. They are willing to test your business as well. How much will you be willing to pay before you crumble under the weight of attorney’s fees? This is why your business needs insurance.
If you have a physical location, you need general liability insurance.
General liability insurance protects you from several types of claims that can arise based upon your business operations. This includes personal injury (someone slips and falls in your place of business) and property damage (fire or theft). Most landlords will require that you have such insurance to protect them from your client’s potential claims. If your landlord does not require this, you should make efforts to obtain it.
If you work out of your home and have clients enter, your homeowners insurance may not be sufficient to cover any claims. You need to make sure that your insurance covers your business endeavors or obtain separate insurance which does exactly that. This is especially true if you keep inventory in your home. If there is a fire, your inventory may not be covered by your homeowners insurance.
If you deliver professional services, you need Errors and Omissions insurance.
Errors and Omission (E & O) Insurance protect individuals and businesses from negligence claims. This is important insurance to have if you are a service provider. Coaches, consultants and designers should ensure that they have this type of insure. Anyone whose business requires a license may have to maintain this type of insurance as a part of their profession. If you are not required to do so, this should be an important part of your business.
If a client feels that you provided them bad advice or acted in an inappropriate manner, this insurance can protect you and your business. This type of insurance will protect you against costly legal fees and damages if you are sued. It also protects against complaints to your licensing agency. Because of the nature of the claims that may be presented, E & O insurance tends to be costly. However, the cost of potential liability far outweighs the yearly premiums. You do not want to be caught without this type of insurance.
If you manufacture or sell physical products, you need Product Liability Insurance.
One type of insurance that is often overlooked is product liability. This type of insurance protects against injury or damage caused by products sold or supplied by your business. You may think that your business does not do anything that could cause injury or damage. Consider a natural soap maker that develops soap that causes an allergic reaction or severe skin rash. Or, a caterer whose food makes people ill. Both of these examples can be claimed under product liability.
You should obtain this type of insurance as soon as you begin providing the product to the public. Even if you are in the process of giving the property away during its testing phase, you should have product liability insurance. Yes, you can have waivers; but waivers may not always apply and is dependent upon the type of damage that may occur.
If after reading this you still think that you have nothing to lose, think again. Do you really want to close your business because you have been sued and cannot afford to pay for damages? It is not as easy as you think to simply close a business and start over. In certain circumstances, you can be sued individually even if you have formed an LLC or Corporation. Do not take chances with your business. Protect it and yourself and ensure that you obtain the proper type of insurance coverage.
Shahara Wright is an experienced and highly sought after business law attorney and business strategist. She is the author of From Entrepreneur to CEO and host of the CEO Collaboration Circle. Shahara founded The CEO Effect, LLC to work with small business owners who want to implement strategy to build capacity.
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