Figuring out How Much Legal Insurance is Necessary

Every small business owner needs to consider the costs of legal insurance, also known as special business liability insurance or business liability insurance. Legal costs continue to rise, as well as the need to defend yourself or protect your business in today's global economy. Your options for paying for legal expenses are insurance or savings. The latter may not be a viable option, especially in an economic recession. If you prefer to buy legal insurance, but aren't sure how much is necessary for your business, follow these guidelines:

Employees

If you have employees, you'll have to figure out the potential impact your employees have on your legal liability. If you're a sole proprietor (someone who works alone), then you don't have to worry about legal insurance for employees, although you may factor this into your future business planning. However, if you have employees, you need to determine the legal risk that each employee has on your business.

The amount of insurance you will need will depend on your business, industry norms, the duties and responsibilities of each employee and how much exposure each employee has with the public. It can be difficult to determine the legal risk, and it will take a lot of guesswork on your part because you don't know how much you might be get sued for based on the actions of your employees. However, you should try to estimate an amount per employee. For example, you might allocate a legal risk of $100,000 per employee.

General Liability

Your business activities also put you at risk of getting sued, and you need to determine your legal risk to figure out how much you need for general liability coverage. For example, a business owner that has a store front or office will need to buy more legal insurance than an entrepreneur who works from home. The industry you're in also impacts how much general liability insurance you'll need. A small business owner who has a construction business will need much more legal insurance than a wedding planner. Because there are so many variables to consider, most insurance companies recommend that you allocate a percent of your gross receipts to paying for legal insurance, which will determine the amount of your coverage. The closer you can get to one million dollars in coverage, the better.

A more affordable solution for legal insurance may be a group legal plan. A legal plan is like health insurance, in that it protects you against financial loss due to lawyer fees. These plans will pay attorneys to draft contracts and other documents to help prevent lawsuits down the road. A legal plan will also pay for your representation in court on certain legal matters covered by the insurance agreement. You can also consult with an attorney under the plan without fear of being charged for billable hours. The plans vary as to what legal services are covered, and may not be ideal for all businesses.

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