Liability insurance is an important part of managing risk for investments. As an investor, there are several potential liabilities that could arise, so having proper insurance coverage is essential. Some key liability risks include lawsuits from tenants, employees, clients or business partners. There are also risks of accidents on your properties causing injury. Environmental pollution incidents related to your business activities also fall into the liability category. This article will explore the major types of liability insurance policies available for investors and businesses, and how to determine the optimal coverage limits and deductibles. Proper insurance planning is a fundamental part of risk management for any successful investment strategy.
General Liability Insurance Protects Against Third Party Bodily Injury and Property Damage
General liability insurance, also known as public liability insurance, covers costs related to third-party bodily injury, property damage, personal injury and advertising injury claims. As an investor, general liability protects against lawsuits from slip-and-fall accidents on your properties, as well as any damage you or your contractors cause to neighboring properties. It also covers liability claims arising from your business operations. Typical policy limits are $1 million per occurrence and $2 million aggregate. You can opt for higher limits if you have a lot of assets at risk. The deductible is usually in the range of $500 to $5,000. General liability is a must-have coverage for property owners and most businesses.
Professional Liability Insures Against Mistakes and Negligence
For investors involved in providing professional services like investment advisory, accounting, legal services, design or engineering, professional liability insurance is critical. Also known as errors and omissions insurance, professional liability protects against the financial consequences of mistakes, malpractice, and negligence claims from clients. For example, if an architect designed a building that turned out to be structurally unsound. Or an investment advisor provided inaccurate financial projections resulting in lost profits. Professional liability limits are often $1 million or higher per claim, with a $2 million or higher aggregate limit per policy term. Deductibles tend to range from $5,000 to $50,000 or more.
Directors and Officers Insurance Protects Company Leadership
For investors with ownership stakes in private companies, directors and officers (D&O) liability insurance provides coverage for lawsuits alleging wrongful acts by company executives, board members, and managers. Shareholders can sue company leadership for misrepresentation of financials, breach of fiduciary duty, wrongful termination, harassment and other claims. D&O insurance covers legal defense costs and damages awarded in such lawsuits so that personal assets of directors and officers are not at risk. Limits of $1 million to $20 million+ are typical for D&O liability. Private company D&O premiums often range from $3,000 to $15,000 annually depending on the amount of coverage purchased.
Employers Liability Covers Worker Injury Claims
For investors with real estate or operating companies that have employees, employers liability coverage is important. It covers legal liability for workplace bodily injuries, diseases, or deaths that happen on the job. The policy responds to injury claims from employees who are not covered by workers compensation laws. This situation arises when employees opt out of workers comp coverage, or for cases involving gross negligence by the employer. Limits typically match an employer’s workers comp policy limits. Employers liability also covers workplace injury claims brought by contract workers who aren’t on payroll, and hence not covered by workers compensation.
Environmental Liability Insurance
Investors with real estate, manufacturing facilities, or other operations with potential for environmental pollution should consider environmental liability coverage. This insures against third-party bodily injury and property damage as well as cleanup costs from pollution incidents. Coverage applies to sudden, accidental pollution events as well as gradual polluting conditions. Limits of $1 million to $5 million are common. Due to the complex long-tail nature of environmental liability, deductibles are often 10% of the loss. baseline pollution studies before buying coverage help insurers accurately underwrite the risks.
There are a variety of liability risks inherent in investing and business ownership. Carrying adequate insurance enables investors to transfer these risks to insurers, protecting their assets in the event of a lawsuit or large loss. Common policies include general liability, professional liability, D&O, employers liability and environmental liability. Matching your coverage to the specific liability exposures faced is key to properly managing investment and business risks.