Function

• The purpose of business liability insurance is to protect an individual in the event he or she is sued by a client or customer. Most small businesses operate as either a sole proprietorship or a partnership. This business structure does not provide protection for an individual's assets. In the event a client brings a suit against the business, the owner's personal assets are at stake. Corporations and some limited liability corporations (LLC) provide protection for the owners, officers and directors. This protection is not guaranteed, however. Officers and directors of corporations can be sued if there is perceived negligence, if they sign a personal guarantee for a loan or if they do anything illegal. Each company and situation is unique. Small business owners must carefully weigh the choice of purchasing business liability insurance against various risk factors.
  
  

Types

• There are three main types of business liability insurance. These include general, professional and product. General liability insurance provides protection from injury lawsuits, property damage and advertising claims. It is also known as commercial general liability (CGL) and is the most commonly purchased type of business liability insurance. Professional liability insurance is often purchased by specialized professionals, such as accountants, computer consultants or medical professionals. It protects against damage claims from mistakes made by the professional in the course of her services. Medical professionals may purchase professional liability insurance alongside malpractice and other types of policies for added protection. Product liability insurance protects companies manufacturing or selling products against claims of injury from customers using the products. Anyone seeking business liability insurance should consult an accountant, attorney and insurance broker to discuss insurance needs and determine which policy and protection is best.
  
  

Benefits

• The benefits of owning business liability insurance for sole proprietors, individuals and partners are many. In the event the business owner is sued, business liability insurance provides coverage for the damages in the suit and the cost of legal fees. This can add up to considerable savings and save the assets of a small business, as well as protect an individual's money and property. Corporations may not find as many benefits in owning business liability insurance. The corporate structure itself separates the company's assets from the owner's assets, so unless the owners are found to be negligent or engaged in criminal activities, chances are that only the company, not the individuals running it, will be involved in a lawsuit.
  
  

Considerations

• Those considering taking out a business liability insurance policy must weigh the risks against the benefits of owning such a policy. To determine risk, business owners can consult industry statistics to see how many suits were brought against similar businesses. After discussion with an attorney, accountant or insurance broker, small business owners may then choose to take out a business liability insurance policy. As with any insurance purchase, the coverage and cost of such a policy may vary widely among underwriters. Trade associations, chambers of commerce and other membership groups may offer discounts to members. Certain insurance companies may also offer discounts if a business takes out all its insurance with one company, such as health, auto and business liability insurance for the entire business.
  
  

Warning

• Business liability insurance can protect individuals from financial harm, but it cannot avoid all the headaches of a lawsuit. Small business owners must be vigilant to avoid all types of suits. If customers visit the office or store in person, always maintain the exterior sidewalks and interior space to avoid situations that may lead to customer injury and trip and fall types of lawsuits. For those offering services, offering money-back guarantees and working one on one with clients to work out individual differences can also decrease or avoid lawsuits. Arbitration may be a way to avoid costly court settlements.