Posted By Pablo Conde on April 13, 2014 in Business Insurance
Pablo Conde

Why Too Much Liability Insurance is Always Better Than Not Enough

Is your business covered by quality liability insurance?

Perhaps you think that your small-to-medium sized business (SMB) is already inundated with too many expenses. As a result, you don’t want to invest in a quality liability insurance policy.

That could be one of the biggest business mistakes you ever make.

Your SMB needs coverage in the event that damages are awarded against you. If that happens, you could required to pay a plaintiff hundreds of thousands (and possibly even millions) of dollars. If you don’t think that you can afford that, then you need insurance.

Here are 3 reasons why liability insurance is so important.

1. It’s A Litigious World

People love to sue. Don’t think that your business is immune from a lawsuit, just because it’s not as large as J.C. Penney or Wal-Mart.

People who feel like they’ve been “wronged” in any way by a business will often take the matter to court to seek damages. This can happen if one of your products ends up hurting someone, even incidentally. It can also happen if the service you provided somehow causes financial damage.

Even worse, sometimes unethical people will concoct bogus reasons for a lawsuit. They’ll just flat-out lie (yes, even under oath) about what your business did or didn’t do. You could still end up losing in that case.

General liability insurance will cover your business if you’re forced to pay damages resulting from a lawsuit. If you don’t have that insurance, you’ll be forced to pay it out of pocket. Is that what you want?

2. You’re Personal Assets Are A Target If You’re A Sole Proprietor

Generally speaking, you can be sued as an individual if you operate your business a sole proprietor (as opposed to operating it as an S Corporation, an LLC, or a C Corporation). This means that your personal assets are on the hook if you don’t have insurance. In short, you’re subjecting the family fortune to chance.

Get a quality liability insurance policy that will cover you in the event that you’re a victim of a lawsuit. You’ll also find that many liability insurance policies will cover your legal fees.

Liability insurance can also protect your personal assets

3. Unethical Plaintiffs Will Try To “Pierce The Corporate Veil”

You might have blown past the last point thinking, “That doesn’t apply to me. I operate my business as a C Corporation!” That’s excellent. You’ve taken a great first step towards protecting your personal assets.

However, unscrupulous plaintiffs and slimy lawyers will try to pierce the so-called “corporate veil.” That means they’ll still try to sue you personally even though you operate your business as a corporate entity. They can do this by accusing you of engaging in “ultra-virus” activity, or activity not associated with the business mission, in your capacity as an officer.

In that situation, excellent liability insurance becomes indispensable. Otherwise, you could personally be liable for very expensive damages.

Liability insurance might seem like a needless expense. However, once you are the target of a lawsuit, you’ll find out that it could save you a fortune.