The statistics are clear. 36–53% of businesses face lawsuits annually, and 90% of businesses will face legal action during their lifetime. Starting a business is exciting, but failing to recognize the daily risks exposes your small business to endless problems. According to another data source, US liability cases have increased 57% over the last decade, and the cost of each lawsuit keeps rising.
Insurance might not help you avoid a liability claim, but it protects your cash flow and your ability to trade if one happens. Read on for a comprehensive guide about liability insurance for your small business.
What’s Business Liability?
At its simplest, business liability is your legal responsibility when something you did (or didn’t do) causes harm. And we guarantee the person filing the claim will do everything to prove you did something wrong.
When we say ‘harm’, we mean physical injuries, property damage, or financial losses. If a customer trips over a cable in your studio, that’s a liability. If a product you shipped malfunctions and damages someone’s equipment, that’s a liability too. If you give the wrong advice and a customer can prove it, that’s liability.
Liability isn’t always dramatic. Sometimes it’s boring paperwork. A clause you overlooked. A deadline you missed that triggered a penalty. A supplier who claims you misled them.
Why Small Businesses Need Business Liability
Because you’ll have to pay out of your pocket if you don’t. A single claim can wipe out a year’s profit if the damage is big enough and your business is small. They sink cash flow and spook partners. The cost of liability lawsuits varies greatly depending on the harm caused.
One study found the median payout was roughly $31,000, but claims can go much higher. It depends on the industry and the issue. For example, the average medical malpractice lawsuit can cost upwards of $1.3 million.
General liability insurance for small businesses everyday risks from becoming company-ending events. It pays for lawyers. It handles settlements. It covers medical bills and property repairs when things go ideways. It also buys you time—tsime to keep serving customers while the insurer handles the messy stuff in the background.
The Common Legal Issues Small Businesses Face
These are the landmines most small businesses step near—often without noticing:
- Slip-and-falls and site injuries
- Property damage to others
- Professional mistakes (Covered by professional Liability, also called Errors & Omissions, or E&O).
- Product liability
- Advertising and media claims
- Data mishaps like loss of data
- Employment-related claims
- Employment Practices Liability (EPLI)
- Contractual liability
How to Take Out a Business Liability Policy
Map your risks in 15 minutes
Note down what you do, where you do it, who you serve, and what could reasonably go wrong. On-site vs remote. Physical vs digital. Products vs. services.
Decide your must-haves
Most small businesses start with:
- General Liability (GL)
- Professional Liability (E&O) if you give advice or create deliverables
- Cyber liability if you store customer data or run online operations
- Product Liability: If you make or sell physical goods
- Consider a Business Owner’s Policy (BOP) to bundle GL and property for savings.
Pick limits that match contracts.
Many partners require $1M per occurrence / $2M aggregate for GL and $1M for E&O. If you’re signing bigger deals, ask about umbrella/excess coverage.
Gather the basics
Legal name, entity type, years in business, revenue, payroll, locations, websites, and past claims. Clean, clear info = faster quotes.
Get three quotes, not one.
Use a broker who understands your industry, plus one digital provider for a quick benchmark. Compare coverage, exclusions, deductibles, defense costs, and retroactive dates—not just price.
Scrutinize exclusions
Look for gaps around subcontractors, IP/advertising injury, contractual liability, overseas sales, and cyber incidents. Ask for endorsements to close holes.
Request Certificates of Insurance (COIs)
You’ll need these to land gigs, lease space, or access marketplaces. Ask your broker how fast they issue COIs and additional insured endorsements.
Set reminders
Claims-made policies (like E&O and many cyber policies) are sensitive to lapses. Calendar renewals, audits, and contract reviews.
Pair insurance with habits
Contracts with clear scopes, change orders, version control, backups, MFA on every account, and basic safety checks at your space. Fewer claims = lower premiums over time.
Know the claims drill.
When something happens, document it, pause the chatter, and notify your insurer early.
The monthly cost of a business liability premium is far less than a claim – there’s no excuse not to do it. There are plenty of online tools to help you find the correct policy for your small business.