Just when you think you’ve got the budget for your small business all figured out, another potential expense crops up. And as the entrepreneur in charge, you’ve got to decide: is this investment worth it? Should you take some money out of your limited budget to cover it? Running a small business of any kind is a constant exercise in juggling expenses vs. revenue, then deciding which costs can help grow or protect your business.
Liability insurance is a good example here. While small and midsize businesses (SMBs) can technically go without it in some cases, doing so means assuming financial risk. Running a business without liability coverage may save you some money month over month, but you’re also vulnerable to financial catastrophe if an accident occurs or someone sues you.
Here are four reasons your SMB needs the protection afforded by liability coverage.
Reason #1: SMBs Can Be Liable for Bodily Injury
When you’re preparing to meet with a client or perform a service, you never anticipate anyone getting injured. But accidents are called such for a reason; it’s impossible to predict every single outcome that could occur.
Perhaps the most well-known example of bodily injury is the slip-and-fall accident, in which a third party (like a client or homeowner) falls on commercial premises or even their own property because of the work you’re doing there.
According to FindLaw, here are some of the “dangerous conditions” that may cause bodily injury to a third party visiting your home-based SMB or commercial premises:
- Torn carpeting
- Changes in flooring
- Poor lighting
- Narrow stairs
- Wet floor
- Broken sidewalks
- Ice patches
- Potholes
And if you visit a client’s property — whether you’re a contractor, landscaper, painter, locksmith, pet sitter, electrician, or freelancer — you may still be held liable for damages resulting from bodily injuries sustained due to your negligence.
What are the costs associated with bodily injury? Medical bills, lost income, physical therapy, and court fees (if there’s a lawsuit involved). Carrying General Liability insurance coverage protects small businesses against having to cover these costs if they are found liable after an accident in which someone sustains an injury or illness.
Reason #2: SMBs Can Be Liable for Property Damage
Small businesses also need to consider whether or not they’re protected if they accidentally damage third-party property on the job. A contractor hanging siding might perforate an exterior wall, causing a leak during a rainstorm that ruins a client’s property. A hairdresser might spill a bowl of dye on a client’s expensive outfit. An in-home personal trainer could drop a barbell, damaging the hardwood floors. A housekeeper could leave the water running after filling up a mop bucket, causing flooding. You get the picture.
If you have liability insurance for your SMB, it will cover these types of third-party property damage claims.
Reason #3: SMBs Can Be Liable for Personal/Advertising Injury
What would you do if your small business was ever slapped with a lawsuit alleging your advertisements contained misleading information that caused harm to third parties? Or if a competitor sued you for allegations of libel and slander? These are just some of the protections your SMB will gain under the personal injury portion of a General Liability insurance policy. Other examples include malicious prosecution, false arrest, and copyright infringement.
Reason #4: Liability Can Bankrupt Your SMB
These three types of liability can easily bankrupt a small business. According to Insurance Journal, the average cost for a customer slip-and-fall claim is $20,000. Other customer injury or damage costs $30,000 on average. And reputational harm to a third party is actually the costliest claim, averaging $50,000.
Investing in General Liability insurance for your small business may be “optional” at first glance, but it’s a major financial risk to forgo coverage these days.
