How does insurance companies base premiums for general and professional liability insurance?
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Asked August 26, 2013
The short answer is that liability insurance covers your risk of damages or injuries to someone else's property. This includes damages caused by you, your employees, your merchandise, or your equipment. If the damages happened because of or during the commission of your company purpose, then it would be handled under your liability insurance. For many companies, General Liability insurance acts as their sole source of business insurance, aside from employee coverages such as Workers Comp or health insurance availability.
Your premiums are based on many factors, including the type of business, liability risk, and employee risk. Professional liability looks at your profession, the general incidence of claims and their outcomes, and more. General liability and professional liability policies are the catchall for all types of commercial business, attorneys, doctors, etc. Professional liability is more common in white collar settings, and carries higher limits as well as premiums.
Merchandise kept on hand is considered when calculating your general liability. Additionally, the type of merchandise and the potential risks it involves are considered as well. For example, if you sell dangerous tools, you hold a certain amount of liability for the condition and performance of the merchandise. General liability would not cover merchandise that spoiled in your warehouse, but it would pay the costs of claims against your company for spoiled merchandise that was shipped out.
By the same token, you hold full liability if your company uses dangerous tools on the job. For example, if you are putting in a water line and cut a fiber optic cable, your general liability insurance would pay for the costs, provided the policy had been properly calculated and your limits allowed it. General liability also covers your employees if they break something on a job site, work that was done incorrectly, or injuries they may cause during the performance of the job. The larger your company, the more liability risk it poses and the higher your rates would be.
Answered August 26, 2013 by Anonymous