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 HOUSE FLIPPING BUSINESS
Example 1: You are visiting the home of a seller to view the property before you decide to buy it or not. While walking through the property, you accidentally trip over the seller’s dog and fall into the china cabinet, knocking it over and smashing most of the pieces inside. Your general liability insurance covers damage caused by your business to other’s property, so you should be able to file a claim and get help with replacement costs.
Example 2: A potential investor is visiting your office to talk to you about an upcoming development. She is walking down your steps to leave when the railing breaks off. She falls off the steps and breaks her arm. She asks that you pay for her medical treatment. Your general liability insurance policy will likely cover this cost.
Example 3: One of your competitors is claiming that you have libeled him with your latest marketing campaign. The general liability insurance you carry will pay for your legal fees, including the cost of a settlement if you settle out of court.
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 house flipping business in America spends between $500-$1,500 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.
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OTHER TYPES OF COVERAGE HOUSE FLIPPING BUSINESSES 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 house flipping businesses should obtain
Commercial Property Insurance
All of the equipment and supplies you use to renovate and flip houses took a considerable investment to acquire. If you were to lose most or all of your commercial property in an event like a fire, you might struggle financially to replace it. With commercial property insurance, you can file a claim with your insurer to get financial help with replacement costs as long as the damage was caused by a covered event.
Commercial Auto Insurance
If you have a car or truck that you use primarily for business, you need commercial auto insurance. A commercial auto insurance policy will ensure that you meet the insurance requirements of your state. It will also protect your business from liability. If you or an employee causes an accident, the insurance policy will pay for vehicle repairs, medical treatment, and legal fees if there is a lawsuit.
TYPES OF COVERAGE SOME HOUSE FLIPPING BUSINESSES MAY NEED
In addition to the policies outlined above, there are a few other types of coverage your house flipping business 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 Umbrella Insurance
A commercial umbrella insurance policy will protect your business if you are in a situation where your general liability insurance policy limits are exceeded—like if you lose an expensive lawsuit. Once the limits of your general liability insurance are reached, the umbrella policy will continue to pay until its own limit is reached.
Home-Based Business Insurance
If your house flipping business is based out of your home, there is a chance that your homeowner’s insurance will not cover accidents resulting from business activities. You will need to discuss your coverage with your homeowner’s insurance provider to determine what is covered and what is not. You may be able to get a home-based business insurance policy added to your existing homeowner’s policy, or you may need to get a separate policy.
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.