As a small business owner, you wear many hats—manager, marketer, customer service rep, and sometimes even accountant. With so much on your plate, it’s easy to overlook insurance until it’s too late. But if you’re relying on misinformation or assumptions about liability insurance, you could be exposing your business to serious financial risk.
Let’s debunk the top liability insurance myths that might be costing you more than you think.
Myth #1: My Small Business Is Too Small to Get Sued
Truth: No business is too small to face a lawsuit. In fact, small businesses are often targeted because they’re seen as less legally prepared. One slip-and-fall, a misused photo in a social media ad, or a customer complaint can result in thousands of dollars in legal fees—even if you’re not at fault.
Whether you run a solo freelance gig or a team of five, general liability insurance helps protect you from unexpected claims that could otherwise bankrupt your business.
Myth #2: My Homeowner’s Insurance Covers My Home-Based Business
Truth: This is one of the most dangerous assumptions freelancers and home-based business owners make. Most homeowner’s policies explicitly exclude business-related claims. That means if a client visits your home and gets injured, or if your business inventory is stolen or damaged, your personal policy won’t cover the loss.
For full protection, you’ll need a home-based business insurance policy or a separate general liability plan tailored to small operations.
Myth #3: Only Businesses That Work With the Public Need Liability Insurance
Truth: Even if your business is entirely online or doesn’t interact with customers in person, you still face risks. A client could claim financial loss due to bad advice, or a competitor might sue for advertising-related issues like defamation or copyright infringement.
This is where professional liability insurance (also known as Errors & Omissions insurance) becomes crucial, especially for consultants, coaches, designers, and tech professionals.
Myth #4: I’ll Buy Insurance Later—It’s Not Urgent
Truth: The longer you wait, the more you risk. Liability issues don’t wait until your business is “big enough.” Delaying coverage can lead to a “claims gap”, meaning any incidents that occur before your policy starts won’t be covered—even if the claim is made after you’re insured.
Think of insurance as a foundation, not an afterthought. It’s better to have it and not need it than the other way around.
Myth #5: Liability Insurance Is Too Expensive for My Budget
Truth: Many small business policies cost less than a cup of coffee a day. In 2025, general liability insurance averages $40–$80 per month, depending on your industry and risk level. Some insurers even offer freelancer-specific coverage for under $30/month.
When compared to the cost of one legal claim, liability insurance is an affordable safety net.
Final Thoughts
Believing these common myths can leave your business exposed to lawsuits, financial loss, and reputational damage. Don’t let misinformation guide your decisions. The right liability coverage offers peace of mind, protects your livelihood, and shows clients you take your business seriously.
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