chapter 7


Before you complete any sales and transactions, you should know how to protect your company. Since you're selling a good or service, you need to take legal safety precautions so that you're protected if things go awry.

Unfortunately, there's always some risk involved when running a business. Whether you're a bungee-jumping company or an electronics repair shop, if your business provides service to the customer, it's recommended that you purchase liability insurance.

While we hope that you'll never have to use your liability insurance, it's better to protect yourself now than be hit with a big lawsuit later. Liability insurance is meant to protect you if any of the following instances happen: bodily injury, damage to others' property, personal injury (including slander and libel), and false or misleading advertising.

Depending on your business, you may want to purchase one, or more, of these insurance:

  • Commercial General Liability (CGL) covers physical injuries, property damage, and false or misleading advertising. It is the most common form of liability insurance.

  • Professional Liability Insurance covers errors and omissions (E&O) and malpractice.

  • Product Liability Insurance covers accidents and injuries by your product.

  • Employment Practices Liability Insurance covers lawsuits from current, prospective, and former employees.

  • Pollution and Environmental Liability covers clean-up of property and any lawsuits from environmental and/or pollutant damages.

What other insurance is required?

If you're a business with employees, most states require that you maintain the following types of insurance:

  • Workers' Compensation is required insurance that protects and provides for employees who are injured on the job. It can also be used to support the dependents of an employee who passes away as a result of a work-related injury or illness. It is usually bought from a third-party insurer approved by the state where your workers are located. Self-insurance is an option, however your company must generate over $500K in net income and have a net worth of at least $5 million to even be considered for state approval.

  • Unemployment Insurance Taxes are federal and state employer payroll taxes that fund Unemployment Insurance. The Unemployment Insurance (UI) program provides temporary financial assistance to workers who are unemployed through no fault of their own. To find if your business is required to pay these taxes, check with the Department of Labor.

  • Temporary Disability provides partial wage replacement to eligible employees for non-work related injuries or illnesses. It is mandatory for companies with employees in California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico.

How else can I protect my company?

Insurance is a great way to financially mitigate any risks. You can further reduce your liability by having your clients sign a Release of Liability (or Waiver of Liability) form, in case something goes wrong. A Release of Liability allows you, as a company, to clearly outline all the dangers that are involved in your service. Once your clients sign the form, they're agreeing to not hold your company liable for any injuries.


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