When you started your business, you probably weren’t hoping to one day end up with a lawsuit on your hands. Either way, it’s critical to have the proper coverage in place before you ever open your doors to the public. But do you know what happens if your small business does get sued? Do small businesses need the same coverage that larger ones do?
For questions like these, it’s important to hear the answers straight from the real pros, AKA independent insurance agents. Ask agents anything. They have the answers. Here’s what they’d say about what happens if your small business gets sued, and how to protect it against that happening in the first place.
What If My Small Business Was Sued?
First off, you’d need to make sure you had adequate business insurance. This insurance provides a lot of important protection for owners, including coverage against lawsuits. If you didn’t have this coverage when you got sued, you could really be in trouble. Having insurance is imperative to keeping your business afloat following all kinds of disasters, and lawsuits are just one of them. Make sure to talk to your independent insurance agent about business insurance.
What Does Business Insurance Cover in the Way of Liability?
Standard business insurance policies include liability coverage to protect you against lawsuits. If you get sued, the liability coverage under your business insurance or business owners policy would cover all associated legal fees, including paying for your attorney, the actual court case, and settlements if you lost the lawsuit. Basically, if you get sued and you’ve got business insurance, all the legal costs are taken care of by your policy if your limit is high enough.
What If I Don’t Have Enough Liability Coverage to Cover All Costs?
Well, in that case, you’d be stuck with the leftover fees. You’d have to cover any expenses surpassing your policy’s liability limits out of your own pocket, and that could really hurt your business. If you didn’t purchase an umbrella policy and you exhausted the limit on your liability coverage under your business insurance, you might be faced with a really terrible situation, like bankruptcy.
Businesses can often go bankrupt after facing lawsuits they can’t afford. That’s why it’s so important to get the right coverage from the start. If your business has any risk of getting slapped with a lawsuit that could exceed your regular business insurance’s limits, it’s critical to make up the extra coverage you might need with umbrella insurance. Your independent insurance agent can help get you covered.
Should I Extend My Liability Coverage?
Really, that depends. Business owners will want to ask themselves how risky the type of operations their specific business performs are. If your business has a greater threat of being sued, especially in such a way that it might lead to a rather expensive lawsuit, it’s a really good idea to purchase additional protection. Business insurance usually limits liability coverage to $1 million, which is enough for many lawsuits, but not all.
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What Is Umbrella Insurance and Does My Business Need It?
Umbrella insurance allows you to extend your business insurance’s liability coverage limits. Umbrella policies basically stack on top of an underlying policy, such as business insurance, in order to increase the liability coverage provided. Umbrella insurance can be purchased in $5 million or $10 million increments. If your business is at risk of expensive lawsuits, you might seriously want to look into getting this coverage.
Say your business insurance includes a $1 million limit for liability coverage and you decided to add a $10 million umbrella policy. Now you’ve increased your legal protection to a total of $11 million. Umbrella policies are also often very affordable and offer valuable coverage for those who need it. Your independent insurance agent can help you decide whether your small business would benefit from umbrella insurance.
What Else Does My Business Insurance Cover?
Beyond just liability coverage, your business insurance protects against many common threats to your physical property and inventory, and much more. Standard business insurance policies provide these common critical protections:
- Business auto: Covers any company vehicles against perils like theft, vandalism, and natural disasters.
- Property insurance: Covers loss of or damage to your physical property, including your office building. Protected mishaps include fires, storms, etc.
- Worker's compensation: Covers financial losses if your employees get ill, injured, or die from a work-related incident. Coverage is mandatory in most states, depending on company size and the type of operations taking place.
- General liability: Covers property damage or injury claims made by a third party.
Business insurance is very customizable, so you can always work with your independent insurance agent to add on various coverages until you feel adequately protected.
What Doesn’t My Business Insurance Cover?
As far as standard business insurance goes, there are two major risks that aren’t covered, flood damage and earthquake damage. Separate flood insurance and earthquake policies would be required to protect your business from damage and/or suspended operations caused by these types of disasters. Your independent insurance agent can help you determine whether you need this additional coverage.
If your business is located along a coast or in another area that’s prone to flooding, you might’ve already been required to have flood insurance. In any case, flood insurance is a really good idea to have if you’re in a flood-prone area. Coverage is only available through the National Flood Insurance Program, which is a part of FEMA. Likewise, if your business is in an area prone to earthquakes, landslides, etc., you’ll want to consider an earth movement policy.
Other Risks Worth Considering Coverage for
Aside from the obvious, there are still many other areas where your business absolutely needs coverage. Fortunately there are tons of add-on coverage options for business insurance that easily handle many of the most frequent claims.
Some optional add-on coverages to business insurance include:
- Business income: Covers financial losses suffered while a business is closed due to fire damage or other disasters.
- Boiler & machinery: AKA "equipment insurance," coverage applies to electric equipment in the building (e.g., AC units and boilers) that breaks down due to power surges, etc.
- Crime insurance: Covers losses due to criminal activity such as theft or fraud. Coverage even applies to employees who steal from the company.
- Professional liability: AKA "errors and omissions insurance," this coverage protects against claims made by clients who have suffered financial losses due to the work they've hired you for.
Working together with your independent insurance agent is a great way to brainstorm all aspects of your business that may need additional coverage. The more complex your business, the more coverage will be necessary to fully protect it.
Here’s How an Independent Insurance Agent Would Help
When it comes to protecting your small business against lawsuits and everything else, no one’s better equipped to help than an independent insurance agent. These agents search through multiple carriers to find providers who specialize in business insurance and umbrella insurance, deliver quotes from a number of different sources, and help you walk through them all to find the best blend of coverage and cost.