Liability Insurance

Overview

Businesses will be in need of liability insurance at some point and businesses are required to have liability insurance by the law. If they do not have it or let their policy laps, they can be penalized. Liability insurance is an insurance that applies to risky activities and pays for claims made for damages incurred by a third person. The primary benefit of liability insurance is that it provides a cushion of protection against unforeseen events, alleviating the need to keep large amounts of income in reserve, in case of damages incurred by someone else.

How it Works

Liability insurance covers damages incurred by a third party through some interaction with the person or the business that is insured. For example, if you get an auto accident, then liability insurance would cover damages incurred by the other person. The same concept applies to business liability insurance. If a person is somehow damaged by using the businesses product, liability insurance covers those damages.

You can purchase liability insurance from any reputable insurance agent or company. It is usually issued in the form of a policy. The policy is typically from six months to a year, but not longer than one year. The business should abide with specific terms set forth by the company during the policy coverage period. This is regarding the steps that a business must take to maintain the coverage. For instance, a business may have to put in place a theft deterrent system and smoke detectors. These should be used regularly and should function properly when required. Failure to follow these steps can result in the cancellation of the policy.

Benefits

The primary benefit of having liability insurance is that it is usually far better to pay the insurance premium than pay for any claims made for damages. While liability insurance premiums may total up to hundreds or thousands of dollars annually, claims can be filed for millions of dollars. So, if a person makes a claim against your business and wins, they will be paid millions of dollars by the insurance company for their claim. There are very few people who can afford that kind of expense out of their pocket. Liability insurance will provide protection from such a law suit filed against them and will eliminate the need to have high reserves of funds.

Costs

Costs for liability insurance vary, depending on the type of business being covered. For example, auto liability insurance is usually far less expensive than a full coverage insurance policy. The other factors that influence the cost of liability insurance are the length of the policy, the amount of total coverage, and also depend on who is covered. However, compared to the possible cost of paying for damages incurred, many people consider liability insurance coverage to be a very reasonable expense.

Timing

Many businesses go in for liability insurance only if it is a legal requirement. It is wise to have liability insurance when you engage in an activity that carries risk with it.