What Is Legal Liability Insurance?

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Accidents happen.
Accidents happen. (Image: traffic accident 3 image by Jim Parkin from Fotolia.com)

For anyone providing goods or services to the public, legal liability insurance is an important safety net in the event that business activities injure a customer or fail to meet customer expectations. An insurance policy will protect business assets from a resulting legal claim against your company, or in the event that the business is a sole proprietorship, even personal assets can be protected. Policies are available from virtually every insurance company, with premium amounts depending on the type of business or the goods and services offered.

Identification

Legal liability insurance is a policy procured from an insurance company by businesses, sole proprietors and even individuals to protect their assets in the event that risks they undertake cause injury to another business or person or to another's property. Though an individual may never need more than an automobile liability policy, liability insurance is a necessity in the business world, especially for unincorporated sole proprietors whose personal assets, including homes and savings accounts, are exposed to liability. In short, a legal liability insurance policy protects the risk taker from potential law suits.

Types

The most common and best understood type of legal liability insurance is probably car liability insurance, now mandated in almost every state. For every type of business, there is a type of legal liability insurance policy. Depending on the geography of the business and its activities, liability insurance may even be mandatory, along with the particular amounts of coverage. Some common examples are medical and legal malpractice insurance, worker's compensation insurance and construction bonds. Local laws and regulations should be consulted to determine mandatory insurance requirements. Beyond meeting minimum standards, businesses should consider their products and activities and the risks presented by their products and services to determine what additional coverage may be necessary.

Is It Really Necessary?

Because liability insurance is an added expense of running a business, many may wonder if it is absolutely necessary. The answer to that question requires a balancing of the risks of running the business against the assets of the business and the ability of the business to cover risks and still continue operations. Consider a delivery service. Every time a driver takes out a deliver, there is a risk that the driver will cause an accident. If it's a big truck, the risk of death in an auto accident is substantial. Considering the financial outcomes of a wrongful death claim against the delivery service (which could be in the millions of dollars), the company would need substantial assets to not only cover the death but also to maintain business operations. That is considering one simple accident. Add the complexity and danger of special products, such as explosives or chemicals, and the liability risks and accompanying price tags to make another party whole can be insurmountable without liability insurance.

Where to Get Legal Liability Insurance

Legal liability insurance can be procured from virtually any insurance provider. However, depending on the type of business activities or products, the average insurance agent may be unable to procure a specialized insurance product. Business owners should consult industry associations, insurance agents and attorneys to fully understand the risks of its products and potential liability risks. In some instances, it may be necessary to craft an entirely unique insurance policy.

How Much Does It Cost?

The short answer is: it depends. The costs of a legal liability insurance policy can vary greatly. While a car insurance policy may only cost $1000 each year, such a policy can be tens of thousands of dollars to cover a delivery service in using the same car. Exclusions from coverage can be crafted into a policy to lessen the expense.

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