As a financial professional, you are running a business in addition to delivering excellent service to your clients. Your business may already have professional liability insurance that covers you for the professional financial work that you perform for clients. However, your financial services business faces legal liability for the same kinds of exposures that apply to all businesses.
In this article, we describe some of the most common types of insurance coverages for financial services firms, including:
- General Liability Insurance
- Commercial Property Insurance
- Data Breach Insurance
- Commercial Auto Insurance
- Umbrella Insurance
- Directors and Officers Insurance and Employment Practices Liability Insurance
General liability insurance (sometimes also called commercial general liability) protects your financial services business from lawsuits claiming property damage or bodily injury caused by your business or your employees.
What does general liability insurance cover?
General liability insurance covers three distinct categories of liability:
- Property Damage
- Bodily Injury
- Personal and Advertising Injury
General liability insurance will cover costs if your business damages someone else’s property.
For example, if one of your employees meets a client at their home for a meeting and knocks over an expensive antique vase, this would be covered under the property damage component of general liability insurance. Your business would be covered for the cost of repairing or replacing the vase. However, this insurance does not cover damages to your business’s own property. For that, you will need commercial property insurance.
Bodily injury is covered when a non-employee suffers physical harm while on your property or as a result of your business’ activity.
For example, a client visits your office for a scheduled meeting to discuss his financial assets. As he leaves, he trips on the front steps and breaks his leg. The client sues your company for medical expenses. General liability insurance covers these damages if your company is held liable. These costs can include lost income from being unable to work, medical costs, payment for pain and suffering, or funeral expenses.
Coverage for personal and advertising injury protects your financial services business when you cause specific types of non-physical injury to another person or business’ reputation. This covers intentional acts that can have unintended consequences. Coverage includes false arrest, malicious prosecution, wrongful entry, wrongful eviction, publications that violate personal privacy, libel, slander, and copyright infringement.
For example, if your company mistakenly publishes a piece of libelous information about a competing business on social media believing it to be true, your insurance would cover a resulting lawsuit.
Deductible and Limit of Insurance
General liability insurance usually does not have a deductible. This means your business will be covered by the insurance company for the entire cost of a judgment or settlement up to the limits of insurance.
Every general liability policy will outline a limit of insurance, which you can choose. The limit of insurance is the greatest amount your insurer will pay for claims against your business. Normally, the limit of insurance is broken down into per-year and per-occurrence limits.
Per-year limits are the maximum amount insurers will pay in damages for a policy year. Per-occurrence limits are the maximum insurers will pay for a single claim. Generally, the higher the limits of insurance, the higher your insurance premiums will be.
General liability insurance policies have several common exclusions that you should note. Your business property is generally excluded from these policies. This is because liability insurance covers damage to other people’s property only. Any liability that arises out of your practice as a financial professional is also excluded, as they can be covered by a professional liability policy. Other acts that are not covered by general liability insurance include:
- Intentional Damages
- Liability Resulting from Intentional Lawbreaking
- Professional Errors
- Employee Injuries
- Employee Discrimination Lawsuits
- Vehicles Used for Business Purposes
No business owner wants to face the possibility of a lawsuit, but lawsuits are quite common. If a client files a lawsuit for a reason covered by your generality liability policy, your insurance company will cover your legal fees. This includes attorney fees, witness fees, and general court costs. Whether your company is at fault is irrelevant; your costs will qualify for coverage. Under most insurance policies, legal fees do not count against your coverage limits.
Does your financial services business need general liability coverage?
General liability insurance is not required by law most of the time. However, it is unwise to operate your financial services business without it. Some customers are unwilling to do business with companies lacking general liability coverage. Additionally, if you rent an office space, your landlord may require you to carry this insurance as a condition of your lease. Even if your state does not mandate insurance, operating without it leaves your financial services business open to serious financial damages if an accident were to occur.