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 MAKEUP BUSINESS
Example 1: A customer visiting your place of business slips on a wet floor and falls, breaking her wrist. She decides to take legal action against your business, claiming that you did not warn her of the danger posed by the wet floor. With a general liability insurance policy, you can expect your legal defense to be paid for by your insurer.
Example 2: One of your employees is hauling a hand cart stacked high with boxes of your products through your parking lot. He loses control of the hand cart, and runs into the luxury automobile of one of your top clients, scratching the paint and causing a small dent. Your general liability insurance policy would likely cover the costs of repairing the automobile.
Example 3: After a meeting with potential clients, one of the visitors to your business takes a wrong turn from the office and enters the manufacturing area. He trips over a pallet and falls, sustaining a concussion and a broken arm. He sues your business in an attempt to hold you responsible for his injuries. The general liability insurance you carry will pay for your legal costs, including any payout or settlement.
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.
The average makeup business in America spends between $350-$750 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.
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 makeup businesses should obtain:
Workers’ Compensation Insurance
All businesses with employees need workers’ compensation insurance to protect both the business and the employees. A workers’ compensation policy is required by law in most states for companies with employees. With a workers’ comp policy, your employees will have their medical bills paid for when treating work-related injuries. It will also pay for missed wages due to work-related injuries.
Product Liability Insurance
If a customer decides that one of your products caused an injury or allergic reaction, she may decide to take legal action and demand compensation. In the event that you are facing such a lawsuit, your product liability insurance will provide financial backup—paying for your legal defense and for any payouts or settlements related to the lawsuit.
In addition to the policies outlined above, there are a few other types of coverage your makeup 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
Every general liability insurance policy has limits. Once those limits are reached, you are left to pick up the tab to cover any additional expenses. With a commercial umbrella policy, you have extra protection beyond your general liability insurance limits. Once the limits of your general liability policy are met—like in the event of losing a costly lawsuit—then your umbrella policy will begin to pay until its limits are reached.
Business Interruption Insurance
Sometimes disaster can strike and leave you unable to keep your business operating—but usually, the expenses don’t stop. A business interruption insurance policy is designed to help cover lost profits if your business has to shut down due to a covered event. A business interruption insurance policy is often offered with a comprehensive business owner’s policy.
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.
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.