General Liability Insurance - What Are Fair Prices?

General liability insurance protects a business when it is sued for causing harm to another person or business. It is the equivalent of personal liability insurance coverage on your home insurance policy. In a number of states, general liability is required along with workers compensation and property insurance. Your premium will be determined on a number of factors; you have the right to request an explanation of premium from your current insurer or during a proposal process to understand the factors at play.

Nature of Business

Your risk of getting sued depends largely on the type of business you are conducting. Lawyers and accountants need insurance to protect them from claims they provided bad advice. Media outlets need insurance to protect them from defamation or libel suits. Trucking companies have high risk of auto accidents leading to liability law suits. These factors will be evaluated on the way to determining your premium. Even if your state does not require complicated liability lines, you should seek them if you are providing contracts. Contracts put you at a higher risk because they are legally enforceable. If you write contracts, seek errors and omissions insurance to protect you against a negligent contract mistake.

Ownership Structure

General liability insurance companies may increase the cost to insure a privately owned business. Private companies have a higher rate of lawsuit because the directors are frequently perceived to have deep pockets. The specific ownership structure will also affect your premium. For example, a sole proprietorship may be covered with only personal liability. A fifty-fifty partnership may be more expensive to insure because there is no majority shareholder. When you set up your company, ask your lawyer about the liabilities you are assuming in your ownership structure. In many states, you will be personally liable for any case against a company you own if the management structure is not properly filed.

Size of Business

General liability claims come from employees and clients alike. The larger the number of people you contact, both in the office and outside of it, the higher degree of liability you are exposed to. You may be able to reduce your premium by implementing routine safety checks. A risk management program can also include an employee handbook and education on company policies. Document all education programs in writing. You will thank yourself for the documentation when it comes time to file a claim or go to court.

Past Claims

Your legal history may be the single greatest contributor to your general liability insurance cost. When you file a high number of claims, your premium will go up in subsequent years. Business may opt for a higher self-insured retention or high deductible. This allows them to assume a certain amount of the small losses without filing expensive claims. Paying out in the short run can save your business big in the long term.

Location

Some states and cities have a high occurrence of lawsuit. California, for example, is an extremely litigious state. If your business is located in a litigious area, your premiums will be higher. There is not much you can do to lower the cost of doing business in an expensive state except for moving your operations. Companies with locations in multiple states should consider setting up separate LLCs, each obtaining its own insurance, so the high cost is not transferred to every office.

 

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