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What is Liability Insurance?

August 12, 2014

Tax Question:

What is liability insurance and how can it help my business?


Liability insurance is insurance designed to protect your business in the event of a lawsuit. Liability insurance protects your business if your company is found legally liable for injuries or property damaged as a result of your company’s services, employees or products.


An employee, a customer’s employee or even the general public may be injured by a product you have made or sold or by a service someone connected to your company has provided. This may result in legal action against your company by the injured party for losses and damages. Liability insurance is designed to protect your business against lawsuits of this type.

As with other types of insurance, liability insurance comes in the form of premiums that vary depending on how much coverage you wish to obtain. The cost of not having liability insurance can be substantial. Even if you are found not at fault, the legal defence costs alone can be substantial to defend your company in the event of a lawsuit. In addition to legal fees, a lawsuit may result in a balance owing for damages or at the very least a settlement amount. Lawsuits such as this can wipe out your savings, harm your company’s reputation, erode your goodwill and even bankrupt your business. In addition, the fact that your business may be incorporated will not always protect you from a personal lawsuit as the director.

A liability insurance policy can be designed to assist and protect you in the event of any of these situations. In the event of a lawsuit covered by your insurance, your liability insurance policy can be used to provide assistance such as legal defence and funds for damages and settlement. Business liability insurance is a cost-effective way to protect your business and the added benefit is this type of insurance is 100% deductible for corporate tax purposes.

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.

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