In this article, we will discuss business liability insurance, including general and professional liability insurance and other add-ons and considerations and how to determine what insurance you need.
At the end, we will also address health, life and disability insurance, which is a completely separate topic but commonly asked about.
Part 1 – General and Professional Liability Insurance
Business insurance, or in other words, “Cover Your Assets”, is important to any entrepreneur or self-employed person.
Let’s illustrate the different types of coverage that will be included in liability insurance policies.
General Liability covers things like bodily injury to anyone at your location or a clients location while conducting business, property damage to your business or someone else’ property, personal injury such as copyright infringement or injury to reputation, and coverage of legal defense against lawsuits.
Professional liability is often referred to as error and omissions (E&O) insurance. An error would be if you did something you shouldn’t have done while an omission would be if you didn’t do something you should have done It covers intangible things called “wrongful acts”, including libel and slander, neglect, misrepresentation, breach of confidentiality, misleading statements in advertising or even a client who takes your advice, has a negative outcome, and blames you for it (even if it wasn’t your fault).
What is not covered?
If a claim is filed against your company, the business is only liable if the accusation can be proven to be a direct result of conducting business. Willful misconduct done by you, your employees or clients, such as fraud, abuse, molestation, harassment, or sexual misconduct, would not be covered under liability insurance.
Which type of insurance would I need for my business?
Professional liability is applicable if you share any form of information or advise, which applies to many service businesses (think accountant, therapist, consultant, tutor, marketers).
General liability is applicable to most business because they a physical location and/or meet with staff or customers in-person. If you work independently from home and meet only virtually with customers or clients, you likely do not need general liability.
Here are a couple of examples:
- If you are a life coach and rent a small office to conduct business, should there be a break-in at the office or a client injures themselves while in a session with you, the owner of the building where you rent your office space, is not liable for any losses that occur. Carrying general liability insurance for your business protects you from being personally, financially responsible for unforeseen expenses related to the general operation of your business. It can also cover you in the event you cannot work for a period of time, depending on the nature of the loss. You would also want professional liability insurance covers you for issues related to mistakes or misrepresentation in your advertising, communication, or coaching and resulting damages to others or accusations of damage.
- If you are a life coach who only provides services online from your home office, you do not have any employees and do not provide services in-person through other businesses, you will likely never have a need for general liability insurance. However, professional liability insurance protects you against intangible risks.
Other Insurance Considerations and Add-Ons
There are other coverages that you can add to your liability policies such as service interruption or business Interruption insurance. For example, if you have a place outside your home where you run your business and the place catches on fire and forces a temporary interruption of your business, you would be financially compensated for the time in which you cannot run your business.
Workers Compensation Insurance is required in most states for any business with at least four full or part-time employees. Note that partners, sole proprietors and owner operators do not count as employees.
Business Owner’s Policy (BOP) is an option you can add to your general liability policy that adds extra coverage for equipment used in your business. If you need expensive equipment to do business, this is an important add-on.
What if you almost never do anything in person because you’re a virtual life coach, but occasionally you hold an event? Purchase short-term general liability insurance coverage for an event or for a short period of time.
If you use a car to transport goods or transport clients, you may need a separate commercial vehicle insurance policy in addition to your regular car insurance. Even if you do not transport anything other than yourself for business purposes, you will still need to disclose the business use of your car to your car insurance company. When getting insurance for your vehicle, you will be asked about your profession and how many miles you drive for business. When the insurance company writes your policy, they will take all of this into consideration. As an example, if you go to your client’s homes to provide your services, you are a fitness trainer and you put an average of 2000 miles on your car each month, your premium will likely be higher than if you just work from home and only put 1000 miles on your car per month. However, again, unless you’re transporting clients or goods, the higher cost is related only to the amount you drive. Rates will be higher for higher risk professions than those with lower risk. If you have any questions about how much and what type of insurance you need for your personal vehicles, reach out to your auto insurance agent or company.
It is also important to note that if you run your business strictly from your home it is important to keep in mind that home businesses can be just as vulnerable to theft, fire, personal liability claims and other risks as a business that is based in an office building. It can create significant loss to you if your computer system is stolen or destroyed, or if a client comes to your house for a coaching session and suffers an injury. Do not assume that your home insurance company will cover any business-related claims if you’re actually operating a business (not just you) from home. Many insurance companies will offer homeowners coverage for home-based business however they will often require an “endorsement” or “rider” to a policy that specifically authorizes coverage for your business and it will result in an increase your insurance premium.
When making the decision to purchase insurance, discuss your business functions with your insurance company or lawyer, as there are many hidden factors you may not be aware of, and you want to be sure you and your business are covered. If at first you have only professional liability coverage, make sure you update your policy if your business model changes and you have employees, begin to conduct business outside of your home, or contract with others for their services.
Do I HAVE to have insurance? If so, do I need it before I even get started?
Many independent entrepreneurs start out without insurance. If you are doing very low-touch, low-risk work, like coaching people on setting goals, you have a very low likelihood of liability and therefore many coaches (in this example) do not have liability insurance when they first get started. However, if you have high-risk business and a physical location where customers or clients enter, it is not advisable to wait to become insured.
As an example, for the first year of teaching fitness classes I was not even aware that a fitness instructor should carry General Liability insurance to protect the business from a bodily injury claim. As time went on, the benefit of having the protection of this type of coverage became clear and I did purchase a general liability insurance policy that was specifically designed to meet the needs of a US based personal trainer and exercise coach. This type of coverage can also extend to virtual training, which is especially important during Covid 19, when almost all fitness training has switched to zoom meetings. General liability coverage now protects me if I was legally obligated to pay damages for bodily injury to others that occurred as a direct result of my fitness classes. It also provides coverage for damage to the property of others resulting from my fitness instruction activities. A Professional Liability policy was also written that provides coverage for wrongful acts, as were noted previously.
To reiterate, it is always advisable to be protected by proper liability insurance. However, there is no legal requirement to do so, so it is up to you.
What if I’m a contractor, meaning I do work through another businesses but I am not an employee?
It is important to illustrate how this applies to self-employed persons (contractors) vs. employees. An employee is a person who is hired to provide services on regular basis, in exchange for a certain compensation. The employer provides liability coverage to its employees through the company’s professional and general liability insurance, when the employee is on the company’s time and/or is in the company’s facilities.
If a business contracts you to provide a service, you are an independent contractor (even if you do not officially sign a contract). Independent contractors are rarely covered under a company’s business insurance, and so, as an independent contractor, you would be liable for incidents that occur as a direct result of your services, while you are working for another company. An independent contractor is personally responsible for carrying liability insurance, both professional and general, and it is often required that you provide proof of coverage to each company you contract with.
Aren’t LLC’s and corporations already providing liability protection?
Sole proprietorships and partnerships have no legal liability protection for the owners. The owners themselves are responsible for all business debts, including liability for any tangle or intangible damages, as discussed.
With LLCs and corporations, the type of liability protection they provide is not the same as liability insurance. These business entities make the business itself a separate entity from the human (you) who owns it. This means, if your business was to be sued or otherwise liable for debt or damages, your business is required to cover he costs, however you, as a person, are not. This means your business could be sued and you could lose everything in your business but they cannot come after you personally for your personal assets, like your money, house, car, etc.
As you can see, this still leaves your business and its assets at risk. Therefore, even with an LLC or corporation, liability insurance is still necessary to protect it.
One difference is that when you have an LLC or corporation, it is your company that owns the insurance policy, while with a sole proprietorship or partnership, it is the individual person who owns the insurance policy.
Other Common Questions
How much liability insurance should you carry? Each situation is unique, but as a general guideline, the type of business you operate should determine how much general liability insurance you need. A good rule of thumb for most small businesses is between $500,000 and $1 million.
How much is it going to cost? Business liability insurance premiums vary based on several factors including the types of service or products you provide, the number of people you employ, how long you’ve been in business, and your claims history.
For most independent contractors, insurance premiums can cost as little as $200 for the year upwards to $100 per month. More complex and larger business go up from there.
Part 2. Health, Life and Disability Insurance and Benefits
Insuring Yourself: Unlike employees, business owners and contractors do not receive health, life or disability insurance coverage through an employer. If you want to have these coverages for yourself, you need to purchase them on your own. These insurance products are designed to cover yourself and your family. You will want to consider obtaining these types of insurance policies to protect the health and wellness of you and your family, and ultimately, the continued success of your company.
Providing Benefits to Employees: As discussed previously, liability insurance plans cover a company’s employees in the event there is an injury at work, compensation for industrial accidents, lawsuits, etc. However, this is a completely different type of insurance from providing employees health insurance.
Most corporations provide access to life, health, and other types of insurance to their full-time employees. Companies with less than 50 employees are not required by law, to provide any health, life or disability benefits to their employees and will not be penalized for not doing so. However, many small companies do subsidize the cost of personal insurance coverage by offering financial assistance for purchasing personal insurance, while others choose to make insurance available to employees who may benefit from more affordable group rates.
It may surprise you to know that employers with 50 or more employees are also not required by law to provide health, life or disability benefits to their employees, although most offer some type of coverage. With the implementation of the Affordable Care Act (ACA), larger employers are provided incentives by the government to provide health insurance coverage to their employees. If the larger employers opt not to provide coverage, there is a penalty levied against those companies through their corporate taxes.
For general and professional liability coverage, search for business insurance agencies in your local area (in person) or in your country. Not all insurance companies cover all types of business. Specifically, life coaching is not commonly listed as its own business type. Usually it falls under “consulting” or “therapy”. Talk to the insurance agent to find out if they will cover what you do.
One good company that provides coverage for life coaches is Hiscox Insurance (hiscox.com). They also have a lot of good information on their website.
For health, life and disability insurance, you can get yourself your own policay through healthcare.gov or by researching private insurance. If you have employees and would like to offer health benefits, start by exploring HealthCare.gov/small-businesses/ or ehealthinsurance.com.
If you are in a country outside the United States, the way all insurance works may be different from how it is outlined in this article. You will need to do research on business and health insurance in your country.
Author: Sanda Kruger
Sanda is an entrepreneur, real estate investor, health coach and professional dancer. Sanda is an entrepreneur with more than 20-year experience in business development and project management in the fields of life, health and fitness coaching. She is also a real estate investor and a banker, who learned outstanding adapted business strategies, sales and marketing techniques, communication, and goal setting skills, hands-on, through life and work experiences. She is a certified fitness professional and is the creator of two original fitness programs, called BellyCore® Fitness and AquaCor®.