What is business liability insurance?

Business liability insurance protects your business from the financial fallout of claims due to injury, property damage, or reputational harm like libel or slander. If someone sues your business over an accident or harm they claim you caused, this insurance can help cover legal fees, settlements and medical bills. 

Unlike commercial property insurance or workers’ compensation, which protects your assets and staff, business liability insurance covers claims from people outside your business. These third-party claims can come from customers, vendors, or the public.

Besides property damage and medical expenses, business liability insurance can also cover attorney fees, court costs and settlement payments. 

How does business liability insurance work?

Business liability insurance coverage steps in when someone sues your company over injury, property damage, or legal disputes. For example, if a client claims your work damaged their property, liability insurance helps cover legal fees, medical expenses and settlements.

You pay a monthly or yearly premium to keep the policy active. When a lawsuit or accident happens, you notify your insurer, who will guide you through the claims process. Most policies also have a deductible, the amount you pay before insurance coverage kicks in.

What does business liability insurance cover?

Business liability insurance covers various risks that can come up during the course of daily operations in a small business. Here are a few of the most common things it covers:

  • Bodily injury if a customer or third party gets injured because of your business.
  • Property damage that you or an employee cause to someone else’s property or belongings.
  • Personal and advertising injury claims of libel, slander, or copyright infringement. 

Besides property damage and medical expenses, it can also cover attorney fees, court costs and settlement payments. 

What isn't covered by business liability insurance?

Business liability insurance coverage protects your company in many ways, but it doesn’t cover every risk you’ll face as a small business owner. Knowing where this coverage stops can help avoid surprises:

  • Employee injuries or illnesses that happen on the job. 
  • Damage to your own business property, like your building or equipment. 
  • Intentional acts you or your employees do, like vandalism or fraud.
  • Automobile accidents while driving for business purposes. 

Business liability insurance benefits

Business liability insurance is one of the wisest investments you can make for your small business. 

One lawsuit can undo years of effort, and small businesses are especially vulnerable. Despite only generating 20% of commercial revenues, small businesses bear 48% of commercial tort expenses — adding up to $160 billion in 2021, according to the U.S. Chamber of Commerce Institute for Legal Reform.

Liability insurance helps ensure a single claim doesn’t drain your business resources. It helps your company stay financially stable when unexpected claims arise. Plus, having coverage builds credibility with clients and partners, as many contracts require proof of insurance.

Who needs business liability insurance?

Every small business can benefit from business liability insurance. Risks always lurk in the background, whether you run a retail store, restaurant, consultancy or contracting business. 

For example, if you have a storefront, you face risks from customer injuries or damaged property. Service providers, like consultants or contractors, could be sued for mistakes or giving inaccurate or faulty advice. Even home-based businesses aren’t exempt — clients visiting your home or a defective product you sell could lead to costly claims.

In short, any business that deals with the public or provides products or services should consider business liability insurance.

Which insurance companies offer business liability insurance?

Sifting through the various business liability insurance companies can feel overwhelming for small business owners. Here are some options:

  • AIG
  • Allstate
  • Chubb
  • The Hartford
  • Progressive
  • Nationwide
  • State Farm
  • Travelers

How much is business liability insurance?

The cost of business liability insurance depends on the industry, business size, your business’ risk and other factors. Higher-risk businesses, like manufacturers, pay more for coverage — around $3 per $1,000 in sales, while lower-risk businesses might pay closer to $1.50, according to the National Association of Insurance Commissioners, a group of top insurance regulators from all 50 states.

We found that, on average, small businesses can expect to pay anywhere from $300 to $1,500 per year, but it’s best to get a tailored quote that can offer a more specific rate.

How to get business liability insurance

Getting protection for your small business starts with looking at your company’s risks and coverage needs. Then, reach out to insurance providers for quotes, either directly or through an independent agent who can compare options for you.

Make sure to provide up-to-date information about your sales, payroll and operations to get an accurate quote. Once you’ve reviewed the options, choose a business liability insurance policy that fits your budget and coverage requirements.

Tips to lower the cost of business liability insurance

You can lower your business liability insurance premiums with a few effective strategies:

  • Invest in training and better equipment to improve safety and reduce claims.
  • Bundle your policies to combine liability insurance with other coverages, like property or commercial auto, to get a discount.
  • Adjust your coverage as your business evolves to avoid paying for more than you need.
  • Keep a clean claims history to lower your rates over time.
  • Choose a higher deductible to reduce your monthly premium. 
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What our expert says

Q: How important is business liability insurance

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Ashely Jantovsky A licensed insurance agent and founder of Perfect Price Insurance Agency
"It’s the first line of defense, protecting everything you’ve worked so hard to grow and achieve. A small business could be one lawsuit away from filing for bankruptcy."

Business liability insurance: Frequently asked questions

Is business liability insurance required by law?

Business liability insurance isn’t typically required by law, but certain industries, states, or contracts may require it. Even if it’s not mandatory, having this insurance is a smart way to safeguard your business from legal claims and accidents.

How do I determine how much liability coverage my business needs?

To figure out how much business liability insurance you need, consider your industry, business size and potential risks. Think about how much a lawsuit or claim could cost, including legal fees, medical bills, or damages. 

It’s also helpful to check any contractual requirements or industry standards. A good rule of thumb is to choose enough coverage to fully protect your business’s assets in case of a worst-case scenario.

Does business liability insurance cover employee injuries?

No, business liability insurance doesn’t cover employee injuries. You’ll need workers’ compensation insurance to protect your staff. Liability insurance only covers claims from third parties, like customers or vendors, who are not part of your business.