Do I Really Need This Insurance For My Business?
· by Matt Fox · posted March 19, 2008
· filed under Business Insurance, Employment Practice Liability, General Liability, Professional Liability (E&O) category.
This is a question I hear a lot when it comes to lesser known policies like Professional Liability (E&O), Employment Practice Liability (EPLI), and Directors & Officers (D&O) Liability Insurance. However, it happens a lot with General Liability too. My answer when a person asks, “Do I really need this insurance?” is usually “No. You don’t need any insurance. However, do you want the protection it provides? You can weigh this protection against the cost.”
People buy insurance because they want to transfer the potential cost of large losses to someone else. It’s the same reason we finance the purchase of cars and homes. Since you don’t want, or have the ability, to shell out a large chunk of cash to make a purchase now you opt to borrow and make smaller monthly payments.
I don’t care how perfect you are, you can be faced with a lawsuit. If you don’t have insurance, you get to pay the attorneys. At $150 to $250 an hour, needing your attorney to simply write a letter can cost you thousands. Now, the legal process can take months or years and one lawsuit can quickly add up to hundreds of thousands of dollars in legal fees. This is before the lawsuit is settled, ruled on, or dismissed! Can you afford this?
This is where the liability insurance policies shine brightly. Most people look at the coverage type and policy limit and think, “I’ll never have a claim like that.” And, you may be right. However, one lawsuit could bankrupt your company with legal fees, even if you’re right. I heard Bill Clinton’s defense costs against Paula Jones were over $1.5 million until it was finally settled and Jones received $700,000 in her sexual harassment case (I’m going from memory so please forgive me if my numbers are off slightly. And I’m not saying he was right either. It’s just a well known example.).
A good policy provides defense costs outside the policy limits. The insurance company can spend millions defending you and you still have the policy limits to pay if the judge rules in favor of the other party. However, be careful, some policies defense costs are inside policy limits and will reduce the amount the policy can pay if you lose.
So, do you need a policy? That’s up to you. How much risk do you like to take? What’s the cost over time versus the potential claim? Often, it’s much easier to pay a little each year than risk paying a large claim and legal fees. The answer is up to you.
Comments
Got something to say?