What Is The Difference Between Property and Liability Insurance

Does your business insurance cover both your losses and your client’s losses? If you have just one type of policy, the answer is likely “no.”

To understand why, let’s distinguish between liability and property insurance.

Imagine this: You’re a furniture repair person with a shop.

A burst pipe floods your shop, ruining your client’s antique sofa and your business property, including tools and computers.

With only property insurance, you might need to pay for your client’s sofa repair.

If you’re covered by liability insurance alone, your computer and tools won’t be protected.

Property and liability insurance
Property and liability insurance: Photo source (Insureon)

Liability and property insurance offer distinct protections, both essential for safeguarding a small business.

Explore the contrasts between liability and property insurance to determine which one you need in different situations.

Understanding Liability Insurance

When facing lawsuits from clients or third parties, your company can incur substantial costs, including legal fees and settlements. To mitigate this risk, small business owners often opt for liability insurance, which covers expenses arising from claims against the company.

Various types of liability insurance exist:

  1. General Liability Insurance: Offers coverage for third-party claims involving property damage, bodily injury, personal and advertising injury (like libel or copyright infringement).
  2. Professional Liability Insurance: Also known as errors & omissions (E&O) or professional indemnity insurance, this policy addresses claims resulting from errors or negligence leading to client financial losses.
  3. Cyber Liability Insurance: Protects against costs linked to data breaches, such as lawsuits stemming from customer data exposure.

Which liability insurance suits your business hinges on its specifics. Certain states mandate liability insurance for legal operation, and contractual agreements with partners or clients can require it too. For instance:

  • Contractors might need general liability insurance as per licensing board rules.
  • Renting commercial space often necessitates a commercial property policy.
  • Professions like medicine, law, and accounting might legally require specialized professional liability insurance due to the advisory nature of their work.

Even when not obligatory, insurance helps shield businesses from out-of-pocket payments in lawsuits.

Accidents and occasional errors can happen, and lawsuits might arise even without strong cases.

Liability insurance covers legal defense expenses and claims investigation.

Understanding Property Insurance

Commercial property insurance safeguards your business premises and contents within a 100-foot radius. It covers accidental losses such as:

  1. Premises Damage: If your owned property gets vandalized, this insurance can cover repair costs.
  2. Business Contents Damage or Loss: In case of events like fires destroying vital supplies, property insurance aids in replacements.
  3. Business Interruption: When direct physical loss leads to business interruption, this coverage helps manage ongoing costs and lost profits.

Coverage terms vary. “Open peril” insurance covers most losses except those excluded. “Named-peril” policies cover specific risks like fire or lightning.

Homeowner’s or renter’s insurance won’t protect business property in a home-based setup. Consider commercial property insurance to safeguard work-related items.

Liability and Property Coverage Limitations

Even comprehensive policies have gaps in coverage. For instance, liability insurance won’t cover:

  • Assumed Liability: Cases where you’ve explicitly taken on liability through contracts (contractual liability).
  • Criminal Charges: Situations where you’re accused of criminal acts and defending them legally.
  • Intentional Harm: When you deliberately damage others’ property.

Liability insurance solely covers third-party matters and doesn’t address damage to your property or personal injury to you/your employees (requires workers’ compensation).

Property insurance covers property damage, but not company vehicles or property during transit. Standard exclusions include:

  1. Deliberate Property Damage caused by you.
  2. Unspecified Weather Events (Acts of God) like floods, earthquakes, etc.
  3. War-related losses.
  4. General Wear and Tear.
  5. Certain Property Types (e.g., data, crops, non-livestock animals).

Choosing the Right Policy

For your business, it’s wise to consider both liability and property insurance. It’s not a liability vs. property scenario. Opting for professional/general liability and property insurance is prudent, as most businesses benefit from both. Thimble’s Business Owners’ Insurance (BOP) combines general liability and commercial property coverage for comprehensive protection.

A Dual Defense Strategy

Initiate by assessing your business risks. Remember:

  • Liability policies defend you legally and cover damages concerning third parties.
  • Depending on your industry, you might require general liability, professional liability, and cyber liability insurance.
  • Commercial property insurance safeguards your business premises and assets.

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