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Liability Insurance: The Most Affordable Insurance You Can’t Afford to Forget

Reuben Dourte

Account Executive at Ruhl Insurance
Reuben Dourte is an account executive at Ruhl Insurance in Manheim, PA where he specializes in farm and agribusiness insurance risks. He received his Accredited Advisor in Insurance designation in 2015.

Insurance is a pain; take it from an insurance professional. Sometimes it seems like it would be the easiest approach to just forget about it. Small business owners are already busy with the day-to-day operations of running a company. Who has time to figure out all this insurance stuff, anyway? Unfortunately, that is the approach that too many entrepreneurs make; and the consequences can be huge. The nature of liability insurance is vastly different than that of property coverage for many reasons. The first being that liability insurance protects you against third party claims of bodily injury or property damage arising out of your negligence. In other words, your insurance policy is paying someone else, on your behalf, for damage that is a direct result of your negligence.

Property insurance

Property insurance on the other hand, is considered a first party coverage; meaning that you, as the insured, collect a payment from your insurance company if your insured property is damaged as a result of a covered cause of loss. Property insurance coverage is limited to the amount of coverage you purchase, which is stated on your policy declarations page. Property coverage and maximum probable/possible losses are also measurable. If your business’s building and its contents have a value of $100,000, and in the event of a total loss you would be out of work for a maximum of three months, incurring a net income loss of $30,000, your total property loss exposure could be limited to $130,000. If you decide that your business can sustain such a loss, you may elect to self-insure your real assets against risk of loss from fire, windstorm, collapse, etc. Since property values, and therefore property losses, are measurable, it is easy to determine how much insurance you need and also to determine if self-insurance is something that you, or your business, can reasonably assume.

Liability insurance

Liability insurance, however, is a different animal. It is extremely difficult to imagine all the scenarios of possible loss when it comes to your liability to a third party. It is even more difficult to determine what amount of insurance is adequate to cover your liability exposures. Since people can sue for anything, and the cost of defense (even against a frivolous lawsuit) can be crippling to small businesses, and as such, even businesses with relatively low risk activities are foolish if they don’t purchase a liability insurance policy. Many people don’t realize that a liability insurance policy provides defense costs if someone were to sue you for negligence. That, in itself, is enough of a justification for every small business to purchase a liability policy.


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Reasons to purchase liability insurance

The most obvious argument to be made for purchasing liability insurance is to protect your assets from legal judgements against your business. If you do not have liability insurance, you are going to be responsible for the payment of claims if, and when, they occur. This will have to come from your cash reserves, operating income, or liquidation of assets. Worse yet, depending on the amount of the lawsuit, your business might be forced to declare bankruptcy. In any of these cases, you are paying for your legal defense, or claims settlements, out of the hard earned money and assets you have compiled. You may have had intentions of selling your business for a profit, or planned to pass it on to your children, only to find yourself starting over at square-one after an injured party has sued over bodily injury, property damage or the pain and suffering those losses have caused them.

Another argument for purchasing liability insurance that often gets overlooked by small business owners is the moral obligation you have to your clientele and the community in which you operate. It’s easy to assume that as business owners, our negligence would never result in a third party’s injuries, but the fact is accidents happen every day. Humans make mistakes, and sometimes we find ourselves in the most unfortunate of circumstances. For example, if you have a produce market and you unknowingly sell produce that has been contaminated with listeria or some other foodborne pathogen which then results in severe illness or death of several people, do you really want to have to explain to their families that you elected not to purchase liability insurance? Many people may evaluate their moral obligation to the people they serve in their business and determine that the purchasing of liability insurance is not only a way to protect their business, but also a way to ensure that the appropriate coverage is in place to make an injured third party whole after a loss.

The final reason why small businesses of any kind should be considering a liability insurance policy is that they are typically the cheapest aspect of your insurance portfolio. Some companies will write a stand-alone liability policy for businesses that do not have any property assets to insure. These policies often start with minimum premiums of $400 to $500, depending on the size and scope of your business. That’s the price of two hours on the clock for a good lawyer! Other insurance companies that do not write stand-alone liability policies will often write a business owners policy, which will provide property coverage for your building, equipment and supplies, loss of income and also liability. These policies oftentimes have the same low minimum premiums and will usually provide some other built in coverages for your business like equipment breakdown, or a small amount of coverage for outdoor signage, etc.

Given the legal environment businesses must operate in today, liability insurance can hardly be considered optional. This valuable coverage comes at a manageable cost and can mean the difference between staying in business and closing your doors forever. Chances are you have worked much too hard to build your business to risk it all.

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