Few things can wreck a business faster than an unexpected, costly lawsuit. Insurance for business owners and their companies is an excellent way to safeguard against the financial risks of liability lawsuits and other legal claims, including theft, property damage, work-related injuries, car accidents, and more. In this blog post, we'll examine when you should get general liability insurance for your company. We will also be in a better position to understand the best stage to acquire a general insurance policy, why it is essential, and the pros and cons associated with this policy in your business.
What is General Liability Insurance?
Business owners should always ensure adequate financial protection against the expenses associated with accidents and other unexpected events that can result in litigation. In these situations, a business insurance policy is designed to keep your business financially safe and protect your assets. These policies cover costs related to injuries or property damage that you may cause or be held liable for, such as:
If your company commits an act with financial implications, either intentionally or due to negligence on your part, during doing business, this kind of insurance can assist you in recovering from any resultant losses.
Who Needs General Liability Insurance?
Any company that conducts business in the state it is incorporated – whether the business is run from your home, a physical location, or online – needs insurance. Your policy must cover all business locations and vehicles you use while conducting business.
When Is the Best Stage To Acquire This Type of Insurance?
If your company or organization is new, you should get general liability insurance as soon as you begin business operations. This form of protection is priced based on the risks associated with your industry. If you fail to acquire sufficient coverage during your startup phase, your business could face substantial financial loss if an accident occurs, leaving your organization liable for damages.
What Is the Cost?
The cost of a general liability policy varies by location, industry, deductibles, and other factors. Generally, your insurance premium will equal 2% and 5% of your annual business income. The insurance premium then must be paid out of your business income. The percentage you are charged may be higher or lower depending on several factors such as:
1. Type of the Industry
The cost of general liability will be different if your business handles a more significant amount of cash, and less cash, than other businesses. If you handle large amounts of cash, you will pay more for coverage because your business is at higher risk.
2. What Kind of Locality Is the Insurance Sold In
Another factor influencing your general liability premium is if your location is offered coverage through a loss control vehicle such as an agency. The cost of coverage for a multi-location business will be less than for a single-location business because it will be cheaper to insure each location individually rather than having one company take risks on various locations and vehicles.
3. Size of the Business
Your company's size impacts the insurance policy cost for new companies just as much as it does for established companies. Larger companies cost more to insure because they typically provide more financial risk. This means that their operations are more extensive and in-depth, which increases the chances that something can go wrong, resulting in legal action against the company. Larger companies also tend to handle more cash than smaller businesses, creating an additional insurance risk factor.
5 Reasons Why General Liability Is Important
Having your business adequately covered is crucial to your financial and legal stability. Business insurance gives you peace of mind knowing that you have financial and legal protection as your business grows and matures. Whether a new company has been in business for several years, it is always important to be financially secure if an accident leads to a lawsuit. Here are five key benefits of general liability:
1. Business Assurance
When you have enough coverage to cover the cost that your business may incur if it is sued, your company is generally more secure and less likely to be sued by others who may have a claim against it.
2. SBA Loans Front-Ended
When faced with a lawsuit, most businesses will need a temporary cash infusion until they can settle the case to resume normal operations. If you have a Business, your business may qualify for a Small Business Administration loan to tide you over until your case is settled.
To be eligible for an SBA loan, the business must meet specific requirements, including owning a business policy that covers the date of the claim up to $1M in general liability protection ($2M coverage for operations under $5M in revenue) (quote provided by SBA). Meeting these requirements may permit you to borrow money from the SBA at a lower rate and with less paperwork than going through other traditional lenders.
3. Disclosures
To be fully transparent with your customers, your business must have general liability insurance. This will ensure consumers know about any business liabilities and will decrease the cost of doing business for small local businesses.
4. Valuable Credibility
By having general liability coverage in place, you can give yourself peace of mind knowing that you won't be held personally liable if someone sues your business. This is important when you are trying to attract new investors and partners. When you have the creditability of a general liability policy, others are more likely to trust your company and invest with it.
5. Employee Communications
General liability insurance is also required for any business employee because their actions can result in one or many accidents that lead to a lawsuit against the business.
Pros and Cons of Business Insurance
The advantages of having general liability are numerous. However, it is essential to consider the costs associated with purchasing general liability to weigh the pros and cons of having this type of coverage for your business.
Pros
- Protection from the financial liability that can be caused by certain lawsuits
- Protection from potential criminal liability, including any charges that may be brought against you due to an accident or other legal violations
Cons
- Expensive to purchase coverage
- Unnecessary expense if the business is not in a high-risk industry
Where Can I Find Business Insurance?
You can buy general liability through an insurance company or agent. While you may pay less through an agent, you must understand that your agent is not experienced and knowledgeable about insuring businesses. You may end up paying more than necessary or receiving inadequate coverage for your business.
1. Online Vendors
Many online companies sell insurance policies for general liability coverage. These companies provide helpful customer service and can offer a quick quote, but they may not have access to local agents who can help you find more customized plans that are based on your specific needs.
2. Insurance Agents
Insurance agents have access to all business insurance plans through different insurance companies. They will be able to help you find a plan that is specific to your business. Insurance agents are experienced in the field of insurance. They may be able to give you great advice regarding other business-related issues such as employee benefits or how to handle certain situations that may arise within your company.
Source of Funding Used in Business Insurance
1.Lines of Credit
Lines of credit are the most common funding source used to pay for the cost of general liability insurance. Lines of credit are most often used by large corporations and represent a small percentage of the total amount of business owned by a company.
2. Factoring Invoice
Factoring invoice provides a company with cash after they sell a product or a service. While this is not commonly used to pay for general liability insurance, it is an option in extreme cases. Factoring invoices has become a big part of how businesses can raise funds.
3. Reverse Consolidation
Not all businesses can take funds from lines of credit or factoring invoices. Reverse consolidation or debt financing is a common alternative to funding insurance plans and other business-related needs. It involves borrowing money from individuals or groups other than a bank. However, borrowing money can be costly and should be used as a last resort for necessary expenses such as general liability coverage.
Conclusion
General liability is an essential type of insurance that can help protect your business from unforeseen accidents or injuries. Whether you are a small business owner just starting or have been in the insurance industry for many years, you must carefully consider the pros and cons of having business insurance to ensure your company's best financial survival.
