About General Liability Insurance
All businesses, regardless of industry, face risks that should be covered by insurance. The most common and comprehensive type of policy business owners invest in is general liability insurance (or CGL).
Some of the risks CGL insurance covers are:
- Bodily injury
- Property damage
- Medical payments
- Legal defense and judgment
- Personal and advertising injury
While businesses aren’t legally required to carry general liability insurance, operating without it is extremely risky. If your business is sued, you could end up facing fees totaling hundreds of thousands of dollars (or more). Having a sufficient CGL policy in place to help compensate for these damages is the only way to prevent this type of event from devastating your business.
COMMON SITUATIONS THAT GENERAL LIABILITY INSURANCE WOULD COVER FOR A FINANCIAL PLANNING FIRM
Example 1: A new client is visiting your office to discuss financial planning options. One of your employees rounds the corner while talking to someone else and runs directly into the client, knocking her back into a desk. She breaks her wrist, requiring medical care. She files a lawsuit against your company. Your general liability insurance will pay for your legal defense costs.
Example 2: One of your long-term clients leaves to go to the restroom, slips on a puddle, and breaks his tailbone. He is upset about the accident, but decides not to file a lawsuit. However, he does ask your business to cover his medical bills. Your general liability insurance policy will likely cover his medical treatment.
Example 3: You get an email from the attorney of one of your competitors, informing you that the competitor is suing your business for libel. You are not certain how your business may have libeled the competitor, but you understand that you need to get an attorney as soon as possible to ensure that your business is protected. The general liability insurance policy you carry covers your legal fees in this situation, paying for your attorney and for any payout or settlement that may be required.
Of course, this is not an exhaustive list of perils a general liability insurance policy will cover, and some conditions may result in a particular peril not being covered. It’s always best to talk to your agent in-depth about the specifics of your policy to avoid blind spots in coverage.
COST OF GENERAL LIABILITY INSURANCE
The average financial planning firm in America spends between $400-$700 per year for $1 million in general liability coverage.
Check out the chart below for a snapshot of average CGL expenditure across a variety of industries:
Several factors will determine the price of your policy. These include your:
- Number of employees
- Per-occurrence limit
- General aggregate limit
You may be able to acquire general liability insurance at a discounted rate by purchasing it as part of a business owner’s policy (BOP) rather than as a standalone policy. A BOP is a more comprehensive solution that includes multiple forms of coverage, such as business interruption and property insurance.
OTHER TYPES OF COVERAGE FINANCIAL PLANNING FIRMS NEED
While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all financial planning firms should obtain:
Workers’ Compensation Insurance
The state you do business in most likely requires that you carry workers’ compensation insurance if you have employees. The policy will benefit your business in several ways, including paying for medical treatment for work-related injuries your employees sustain. It will also help to cover the lost wages of injured employees while they recover.
Professional Liability Insurance
Professional liability insurance is designed specifically for your business. It helps protect you from liability caused by errors or failure to perform. There is always the possibility that one of your clients will file a lawsuit against you, claiming you failed in your financial planning duties. With professional liability insurance, your policy will pay for your legal fees if you are sued and for any settlement that may be required.
TYPES OF COVERAGE SOME FINANCIAL PLANNING FIRMS MAY NEED
In addition to the policies outlined above, there are a few other types of coverage your financial planning firm may require depending on certain aspects of your operations. Some of these might not apply to you, so be sure to ask your agent which policies are right for your business.
Commercial Property Insurance
The computers, office furniture, and other equipment you have in your office were costly to purchase—and they would be costly to replace if they were damaged or destroyed. Commercial property insurance is designed to help pay for damage to property owned by your business that is caused by an event like a fire or severe storm, so you can get replacements without paying out of pocket.
Data Breach Insurance
Also called cyber attack insurance, data breach insurance provides protection for your business if you are the victim of a cyber attack. For example, if your clients’ financial data is compromised by a hacker and one or more clients file a lawsuit against your business, your data breach insurance would pay for your legal fees. Your data breach insurance would also pay for any payouts or settlements that might be required to protect your business and end the lawsuit.
ADDITIONAL STEPS TO PROTECT YOUR BUSINESS
Although it’s easy (and essential) to invest in business insurance, it should not be your frontline defense. Yes, insurance will compensate for your business’ financial losses after an incident occurs, but it’s much better to avoid losses altogether.
With this in mind, here are three things you can do to better protect your business:
- Use legally robust contracts and other business documents. (We offer free templates for some of the most common legal forms.)
- Set up a limited liability company (LLC) to protect your personal assets. (Refer to our guide for step-by-step instructions on how to form an LLC in your state.)
- Streamline your business’ internal processes. This will remove unnecessary variables from common tasks and create a safe, consistent environment for conducting business.
FREQUENTLY ASKED QUESTIONS
What is included in a business owner’s policy?
A typical business owner’s policy includes general liability, business interruption, and property insurance. However, BOPs are often customizable, so your agent may recommend adding professional liability, commercial auto, or other types of coverage to your package depending on your company’s needs.
What is the difference between business insurance and general liability insurance?
“Business insurance” is a generic term used to describe many different types of coverage a business may need. General liability insurance, on the other hand, is a specific type of coverage that business owners need to protect their assets.
Do I need insurance before I start a business?
You should invest in coverage for your business before your first interaction with a customer. Although the cost of insurance may seem high for a brand new business, it’s best to be proactive when it comes to protecting your assets. After all, you can’t buy insurance to cover a loss that has already occurred.
Will insurance protect my business from everything?
Not necessarily. Certain exceptions may be written directly into your policy, and some perils may be entirely uninsurable. Be sure to discuss the scope of your policy in-depth with your agent to avoid being blindsided by holes in your coverage.