Liability Insurance

umbrellas-art-flying-17679It’s not a pleasant though, but you might make a mistake on the job—or at least appear to make one—and moreover it might be a mistake of the magnitude that one of your clients might take legal action against you.

Now it’s not fun to think that you might make such a mistake, that said mistake might be a big and costly one for your client, that they might get very angry with you, that they might wrongly think that you have done something wrong, or that ultimately they will sue you, but you have to be prepared for that possibility.

You simply can’t expose yourself to that liability and that’s why limited liability companies and liability insurance exist. To be blunt: don’t do any work without liability insurance. Some businesses won’t even employ you if you don’t have it.

So get liability insurance. Policies will usually cover legal defense costs (aka attorney fees) if you are sued for mistakes, negligence, and copyright infringement. If you have an office and employees you’ll likely need more coverage to accommodate those liabilities. In general, you’ll probably want two or more policies (e.g. general liability and professional liability) to protect yourself. The Small Business Administration has a quick rundown of the basic types of policies.

As with auto insurance, for each policy you’ll have a limit of liability and deductible for each claim, a total limit of liability for your policy, and of course a quarterly premium.

Get policies for at least $1,000,000. (But note: while that amount is the total for your whole policy, your coverage for a particular type of claim might be less.) That sounds crazy, but remember that lawyers charge a lot of money. (Don’t go by the fact that your lawyer-friend doesn’t make a lot: his boss still charges clients a lot for your friend’s work.) An angry client, especially if he is himself a lawyer who would only have his time to lose, could very well try to bury you in legal chicanery and paperwork that he knows you simply can’t afford to fight, all in the hopes of bankrupting you out of spite. 

So get liability insurance. When filing out the application, bear in mind three things. First, you will have to estimate your profits if you are just starting up. Second, the insurance company will ask if you use a contract and if you do, you’ll get a better rate because a contract protects you and as such you’re less of a risk. Third, be accurate in describing your business because they’ll tailor your policy for you.

Finally, know what you’re policy does and doesn’t cover. Perhaps review it with a lawyer to see if it has or needs any special provisions unique to your state, but know your coverage: you don’t want to sign off on a project thinking you’re covered when you’re not.

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