Professional Liability Coverage: What Business Owners Need to Know

When you're running a small business, you've got a lot on your plate. There's keeping your business going, making a profit, strategizing for the coming year and more.

You don't want to worry about what happens when the unexpected hits—an employee gets hurt on the job or there's a claim of negligence—potentially leaving you exposed. Unfortunately, these issues can cause way more than a headache. You could face liability and financial strain, too.

Professional liability coverage can help give you some peace of mind and protect you and your business from potential risks. Here are some of the different types of liability insurance small business owners should consider.

Common risks small business owners face

Every business faces risks. You probably know small businesses are no exception to that rule. Trouble can come from anywhere, from mistakes made by you or your employees, to accidents on the job and other threats.

These are some common areas of liability small business owners often encounter:

• Personal injury and property damage: A client visiting your office falls and gets injured, breaking their arm. They could sue you for damages and hospital fees.
• Errors and mistakes on the job: A client hires you to consult on reviving their business. If their business fails, they could sue you for negligence, which could damage your reputation.
• Employment-related issues: One of your employees claims you haven't promoted them at the same rate as their coworkers, so they file a discrimination claim against you.

It's key to prepare for potential business risks and find ways to minimize them. If you don't, you could be found liable for damages, and having to pay out costs that could put a significant financial burden on your business.

Different types of professional liability insurance

The best way to protect yourself and try to mitigate some risks is to get insured. These are some of the more common types of business insurance that may fit your needs.

• General liability insurance: Once you decide to explore your coverage options, a good place to start is general liability insurance. It helps protect your business against any claims of injury or property damage. In addition, general liability insurance will help pay for your defense and the cost of damages.
• Errors and omissions insurance: For some small business owners, errors and omissions insurance, also called professional liability insurance, is something to explore if you provide services. This professional liability coverage helps protect your business against claims you were negligent, misrepresented information or gave bad advice to a client.
• Employment practices liability insurance: Employment practices liability insurance, or EPLI, helps protect your business against employment-related claims such as wrongful termination, discrimination and harassment. In addition, EPLI coverage will help pay for the legal costs associated with your defense.
• Directors and officers insurance: Strategic business decisions also pose a risk to business owners. Directors and officers insurance is considered a type of management liability insurance. It helps protect board members from claims of mismanagement, slander and failure to comply with company bylaws or regulations. Depending on your situation, you might choose to combine directors and officers insurance with EPLI coverage.
• Workers' compensation insurance: If you have any employees, you'll want to consider workers' compensation coverage. In some states, coverage is mandatory for even a single employee. Workers' comp coverage helps protect you from damages if an employee gets injured or ill while on the job. It will also help cover their wages while they recover.

Make sure you pick the right coverage for your needs

There's no one-size-fits-all coverage that works for every small business. Instead, look at your business and determine your risks, which can vary depending on the size of your business and your industry.

Here are a few things to consider:

• Service-based companies have different areas of risk compared to businesses that sell products.
• Some industries, such as construction, are inherently riskier than others and might require more coverage.
• Many nonprofits, for example, are run by boards, so having coverage for that could make more sense compared to a solo small business owner.

Once you have a better idea of the potential risks your business may face, choose the types of professional liability insurance that work best for your situation and needs.

When you have the right coverage, you'll be able to spend your time focusing on running your business—instead of worrying about the unexpected.