Owning and running a business is rewarding, but it can often be challenging. A particularly complex aspect is understanding all the rules, regulations, and compliance elements involved. Even if you are an experienced professional and know your area, some things can go unnoticed until it is too late.
Companies in all industries face risks. If something goes wrong, a dissatisfied customer can cost you. Therefore, in addition to the certificates and licenses required for many businesses, it’s also essential to have adequate insurance coverage to avoid potential legal implications.
Certifications, Licenses, and Insurance Types
Certifications are recognized credentials of the skills of a professional, awarded by additional training in important areas. They are the best way to show that you understand your industry and your company is in good hands. In addition, most businesses require some certification to operate. For instance, restaurants are often required to maintain different food safety certifications.
Another component to consider is a license from both federal and state agencies. This document is essential for several areas: bars and pubs often need liquor licenses to sell beer or wine; businesses involving agriculture need licenses to import or transport animals, animal products, or plants across the state line, etc. Some licenses expire after a set period of time, requiring business owners to be aware of renewal deadlines.
Finally, one of the most critical and often overlooked requirements is insurance. Small businesses in all sectors need different insurance coverage not only to comply with the law but mainly to protect themselves from liability and possible lawsuits.
What is Professional Liability Insurance?
The essential insurance coverage for business owners is professional liability insurance. Even with all the technical knowledge, training, certifications, and licenses, sometimes you may be questioned by customers regarding the service you were hired to provide. Complaints can be due to late, incomplete, or unsatisfactory work, or clients can claim that your negligence costs them additional money, and the case may end in court.
Also known as “errors and omissions insurance,” professional liability insurance exists precisely to protect professionals from liability claimed by clients. This includes:
- Negligence – failure to take proper care over the service you were hired to do,
- Malpractice – improper or negligent professional behavior, and
- Misrepresentation – giving a false or misleading account of the nature of your service.
What is Covered by Professional Liability Insurance?
In practical terms, having professional liability insurance can help cover expenses with:
- Work errors
- Undelivered or incomplete services
- Missed deadlines
- Budget overruns
- Breach of contract
Suppose a customer sues your company for any of these causes. In that case, professional liability insurance can help with the lawyer fees, judicial and administrative expenses, and other costs associated with agreements and judgments.
What Isn’t Covered by Professional Liability Insurance?
While it is beneficial in cases where you are sued for making a mistake, professional liability insurance doesn’t cover everything. That is, you will still need to hire other insurance policies to protect yourself from other claims.
For example, for bodily injury or property damage, you need to have a general liability insurance policy. It helps cover the costs of legal action if someone gets hurt on your company’s premises or you damage someone else’s property while providing a service.
If your business has employees, workers’ compensation insurance is mandatory by law in most states to help cover cases of work-related injuries or illnesses (if your employees get injured or become ill due to the work they perform at your company).
Which Businesses Should Consider Professional Liability Insurance?
Who needs professional liability insurance? The simplest answer is most professionals. Every small business that provides professional services or advice directly to clients should consider having this policy; some clients even demand it when signing a contract.
Some professionals who should consider professional liability insurance are:
- Real estate agents or brokers
- Auditors and consultants
The Importance of Being Insured
Running a business can be challenging. Professional liability insurance can make your life much easier. An architect can make a slight miscalculation; a product supplier can miss a deadline; an accountant can have a tax report questioned by a client. Claims of this kind can lead to costly lawsuits, which can even ruin your company if you have to pay out of pocket.
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As a business owner, you must understand the risks associated with the profession you have chosen and hire the insurance coverage necessary to protect you and your business from the costs of negligence-related lawsuits.
Clients feel more comfortable doing business with someone properly insured, as this is a guarantee that they will be adequately compensated if any problem has to be resolved in court. Therefore, it’s a win-win situation in which everyone will feel safer.