How much business liability insurance do I need?
Every tech business has different needs
Business liability insurance needs are different for every IT business owner because every business has different risks. The business liability insurance needs of your tech firm depend on:
- The type of work your IT business does
- How many employees you have
- Where your business is located
Most IT business owners typically purchase general liability insurance and errors and omissions insurance (E&O) when they're first starting out. Together, these two policies create a strong commercial liability insurance foundation for most tech startups.
The dynamic duo: general liability and errors and omissions insurance
General liability insurance can cover the cost of lawsuits related to third-party injuries or property damage (e.g., a client trips walking up the stairs to your office and drops their laptop), as well as advertising injuries like libel and slander.
Errors and omissions insurance can pay for legal expenses over professional errors. Also known as professional liability insurance, it comes into play if a client sues you over:
- Incomplete work
- Missed deadlines
- Errors in the final product
Small business owners, including IT firms, are often victims of frivolous lawsuits. Even in a best-case scenario when a judge agrees with you and tosses the case, it could still cost you thousands of dollars in legal fees.
The good news? General liability and errors and omissions insurance can help you pick up that tab.
How the chain of liability leads to mounting legal bills
When something goes awry in the business world, any company that was even remotely involved could get named in the suit. It’s basically one big chain of liability.
Attorney Adam Kaufman, owner of Adam B. Kaufman & Associates, PLLC, says one of his clients, an online advertising publisher, was recently caught up in a chain of liability class-action lawsuit as a result of unwanted advertising texts and emails. Kaufman says his client didn’t actually send the messages, but the lawsuit named every business that was connected to the messages. Kaufman says violations for advertisers contacting people without permission typically run about $1,000 per incident, which means this lawsuit could potentially seek millions of dollars in damages.
“How do companies like my client protect themselves?” asks Kaufman. “They buy professional liability insurance [E&O], which will protect them in the event that they make a mistake or something slips through the cracks.”
Thanks to his client’s coverage, Kaufman says the insurance company is covering the legal expenses associated with the lawsuit and paying for an attorney to handle the case.
“Expenses mount very quickly,” says Kaufman. “This lawsuit is still in the discovery stage, and it’s already cost about $50,000.”
How much does business liability insurance cost?
Business liability insurance prices vary based on the size of your business, but general liability insurance typically costs:
- $500 to $900 per year if you’re an independent contractor or only have a handful of employees
- $3,500 per year if you have a larger IT business with 20 to 50 employees
Per year, E&O typically costs:
- $1,000 to $1,500 per year for most independent contractors or freelancers
- $2,500 to $4,500 per year for a small IT consulting business
- $14,000 once you hit revenues of around eight figures annually
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