Liability insurance is one line of insurance coverage a business owner may consider in order to protect assets. This option will protect you in case you, or your business, harms another person, either intentionally or through negligence. Costs can run from $100 a year, to tens of thousands of dollars. Like most insurance, liability insurance varies in cost based on your risk exposure. The riskier your business, the higher your premiums.
What is Liability Insurance?
There are two main categories of insurance: property and liability. Property insurance protects your building, cars and other assets if something happens to them. Liability insurance, on the other hand, protects you in case you harm another person or business. Even if the damage was unintentional, your business may be held responsible. Liability is protection from legal expenses and other costs you may incur because of willful damage or negligence on your part. This is particularly a concern for small businesses where the owner and the business are very closely linked.
Factors Affecting Cost
Your insurance costs are determined by your insurance company, which estimates the likelihood that you will need to file a claim. If the likelihood is high, your premium is high. If the likelihood is low, your premium will be lower. So, the factors affecting cost are the same as those that affect risk. The size of your business, the number of employees you have, the type of business you are engaged in and the policies you have in place to stop negligence will all affect your premium.
Getting a Lower Premium
There are several ways to reduce the cost of liability insurance for your small business. The first is always to keep your claims and risk exposure low. Implement risk management practices to stop claims before they happen. A second way you can reduce your cost is by opting for less coverage. You can choose to have a high deductible, meaning you will pay more money out-of-pocket before your insurance company starts paying a claim. You can also opt to have lower limits, which means the insurance company will have to pay out less, even if you have a big claim.
Liability Cost Examples
Small business liability costs average $2 to $4 spent for every $1,000 of revenue. Costs also depend on selected policy options and procedures. For example, the average liability cost for a home childcare business is $350-$700 annually. Imagine you are paying $600 per year and want to lower that cost. You raise your deductible from $2,500 to $5,000; if you file a claim, you must pay the first $5,000 of costs yourself. Your premium is now $525 per year. You change your policy limits from $500,000 to $250,000; you will now incur any expense over $250,000 if a large claim occurs. Your premium goes down to $450 per year. Next, you implement risk management procedures. You have all parents sign waivers of liability, you have an engineer childproof your facility and you provide your staff with safety training. You do not have a claim for two years as a result of these procedures. You have lowered your costs to $350 per year.