A Liability Insurance Primer for Small Businesses

Small businesses often tend to ignore the need for insurance due to the associated cost of insurance or a misleading belief in the low probability of major risks impacting their organizations. However, this misplaced confidence can have catastrophic repercussions for small businesses. It is essential to cover and protect all business assets with the appropriate insurance schemes. 

Confusion about the various types of insurance coverage is understandable. So, let’s try to clear the air about one crucial insurance cover. Here’s a note on the liability insurance cover a small business must take. 

General Liability Insurance 

Liability insurance protects small businesses from lawsuits that may emerge as a result of real or claimed negligence. This insurance covers the cost of defense and claims in the events of property damage, injuries, advertising damages, etc.

Small businesses, including start-ups, are often new or somewhat disorganized. Their people may not be fully trained or checks and balances may not always be foolproof. Small businesses may unknowingly engage in possibly misleading advertising or claims may be filed by a customer for poor service. Such claims and lawsuits are covered under liability insurance. There’s a compliance aspect to this too as, without general liability insurance, small businesses may not be able to rent office space or secure loans.  

Product Liability Insurance 

Several small businesses are engaged in the development or distribution of a specific product. It’s always possible these products may lead to some form of personal or property damage for the buyers. For example, an electrical component could set off a fire. There are also various instances of lawsuits filed by the customers due to specific bugs or defects in software applications and products. Such events are common across sectors.

Product defects can be to the negligence of small businesses. Unfortunately, many small businesses do not have an adequate budget for detailed testing and quality assurance of a product. Defects and loopholes remain and emerge when customers use them. Product liability insurance protects small businesses from such occurrences of negligence or faulty instructions. Lawsuits filed in response to product defects or breach of warranty are also covered under the insurance type. 

Product liability insurance is not always mandatory for small businesses; however, it is best to be aware of the possible scenarios and be prepared for mitigation of adverse occurrences. 

Professional Liability Insurance 

Professional liability insurance is also often called errors and omissions or malpractice insurance. Small businesses should consider the possibility that the clients or stakeholders may litigate for perceived or real damages. One of the most common sectors is medicine and healthcare. Doctors carry malpractice insurance to protect themselves from the lawsuits filed by the patients. It is essential for other professionals too, such as architects, lawyers, accountants, IT professionals, and others. 

Most of the professional boards recommend that professionals carry professional liability insurance. Small businesses can have employees that may not have massive experience in performing the tasks they are supposed to. Negligence or error is not uncommon in such cases. Professional liability insurance protects professionals as well as small businesses. 

Internet Business Insurance 

Many small businesses in the current times are being run over the web and social media channels. The involvement of web mediums and networks increases the possibilities of security and privacy attacks. Risk events, such as data breaches, malware attacks, network eavesdropping, phishing attacks, and data loss are common in the internet age. Small businesses with a limited web presence can still be exposed to these issues through emails and other digital transmissions. 

Internet business insurance provides small businesses with protection from all forms of security and privacy breaches. The absence of this insurance can result in significant financial damages to the business. 


Insurance is a mandatory risk-mitigation requirement to effectively conduct business activities. Small businesses often do not understand the need and significance of insurance until they face a business risk and the resulting losses. Liability insurance covers the different forms of insurance that the small businesses shall consider and include in their respective insurance policies. These will enable small business owners to protect themselves and build risk-free business operations for themselves.