|What Does Liability Insurance Actually Cover?
The home improvement and service sectors need liability insurance to protect their businesses from risks. Liability insurance safeguards businesses from different risks that may arise from daily operations, such as property damage or injuries.
Many contractors don't know about liability insurance. This shouldn't be so. They need to understand these insurance policies to gain financial stability and plan for long term business success.
The Basics of Liability Insurance
Liability insurance exists as a financial shield for your business. It covers the legal costs and potential settlements if you are responsible for injuries, property damage, or other types of mishaps. Think of it as a peace-of-mind package for when things go south.
You'll typically encounter two main parties in a liability insurance contract. One is the insurer, such as simply business liability insurance, the company providing the insurance. The other is the insured—that's you, the business owner or contractor. It's a mutual agreement where you pay premiums, and the insurer agrees to cover specified risks.
Misinformation about liability insurance is common. Some people think it's a free pass for negligence or that it's unnecessary for small businesses. In reality, coverage has limits and exclusions, and going without it can be financially devastating.
Common Reasons for Claims in Contracting
Claims against contractors can stem from various incidents. Some of the big ones include property damage, injuries on the job site, and project delays. Even issues like unsatisfactory work can lead to legal disputes.
If you're without insurance, a single claim can devastate your finances. Legal fees pile up quickly, and settlements can be hefty. You might have to dig deep into your business funds or even personal savings to cover these costs.
But the impact of a claim isn't just financial. It takes a toll on your daily operations, too. Handling a claim means time away from current projects, which can lead to delays and upset clients. The reputation damage can be long-lasting, making it harder to win new business in the future.
Types of Liability Insurance
Protecting your business isn't the same for everyone – it depends on your unique needs and circumstances. There are different types of liability insurance you can consider; general liability, professional liability, and commercial auto insurance are just a few options.
General liability insurance is pretty broad. It covers claims related to property damage, bodily injuries, and even defamation in some instances. If you're doing a home renovation, and a mishap occurs damaging the client's property, this type of insurance kicks in.
Professional liability insurance, sometimes known as errors and omissions insurance, focuses on negligence related to professional services. If you're an architect and your design flaw leads to a costly error, this insurance will have your back financially.
Commercial auto insurance is for businesses that own and operate vehicles. If one of your company trucks is involved in an accident, this policy will cover the associated costs. You need a commercial auto policy, especially if you use vehicles regularly or occasionally.
Selecting the right insurance involves assessing your business needs. Take inventory of the specific risks associated with your line of work. Discuss options with an insurance advisor and look into bundled packages that can offer comprehensive coverage.
Choosing the right insurance requires that you should first understand what your business requires, then you identify the specific risks that come with your industry. Once you have identified the risks, you can proceed to talk to an insurance advisor about different options.
I am sure you definitely want to save on your liability insurance. Therefore, consider insurance packages that combine different coverage for a more comprehensive solution.
Remember that it's not just about picking one type over the other. You can mix and match based on your business requirements. Some contractors opt for a combination of general and professional liability insurance to make sure they're fully covered.
What General Liability Insurance Covers
General liability insurance offers a safety net for various types of claims. One crucial area it covers is injuries and property damage. If a customer trips and falls at your job site, this insurance will cover their medical expenses.
In addition to physical harm, it takes care of property damage claims. Accidentally broke a client's antique vase while installing new cabinets? The insurance will cover the cost of repair or replacement.
Another policy you should consider is advertising and reputation-related coverage. If you're slapped with a lawsuit for copyright infringement in an ad, this insurance can offer financial support. This also applies to cases of defamation, which can be either in written form (libel) or spoken (slander).
But it's not an unlimited pot of gold. Policies have limits on what they'll cover. These limits determine the maximum payout for a single claim and also an aggregate total for multiple claims within a policy period.
Deductibles are your out-of-pocket expenses before the insurance starts paying. These can vary depending on the risk profile of your business. Lowering your deductible often means higher premiums, so balance is key.
What General Liability Insurance Doesn't Cover
General liability insurance isn't a catch-all solution. One major exclusion is intentional acts. If you deliberately damage someone's property, don't expect insurance to cover it.
Another area that's often misunderstood is contractual liabilities. The fine print in your contracts might promise more than what your insurance will actually cover. Make sure to align your contractual commitments with your coverage.
Regarding your employees, this insurance generally won't cover their workplace injuries. That's where worker's compensation insurance steps in. It's specifically designed for employee-related injuries and illnesses.
Shoddy work is another sticking point. If your work doesn't meet industry standards or you've left a project unfinished, the client's claim may not be covered. In such scenarios, you could look into professional liability insurance as an added layer of protection.
Conclusion: Liability Insurance Coverage
If you are in the home improvement and service sector, I would advise you to understand your liability insurance properly because it will be key to protecting your reputation and finances.
From general to professional liability insurance, each type has its own set of coverage, limitations, and exclusions that need to be carefully considered.
Working with an insurance advisor can assist in customizing your policies to match your business's needs. This will, therefore, enable you to concentrate on business growth and satisfy your clients.