Calculating the appropriate type of business insurance liability coverage you need is based on rating formulas ranging from the simple to the complex. Square footage is one, among numerous building rating factors (or risk factors), used to determine which single or multi-policy liability package is best tailored to your specific business needs.
You may be asked by your insurance agent to provide detailed information on the total square footage of the building your business is located, the total square footage your business occupies within that building, the square footage of customer area, if applicable, and the total square footage of the ground floor if your building is, for instance, two stories.
Other factors may include the type of business you own (manufacturing, distribution, professional services, etc.), the location of your business, the building's construction, your sales figures, payroll, the number of full-time and/or part-time employee, and so forth.
Identifying the type of business will affect which of these rating factors may play a greater role in determining how much liability coverage you need.
In general, if sales figures are used in calculating your liability policy you are probably in the manufacturing or distribution business; product-oriented.
On the other hand, if the square footage of occupancy is used, your business is more than likely one which provides professional services to clients, such as those offered by attorneys, engineering firms, or medical practices.
Statistics have shown that the most significant general liability risk to professional firms if from accidents occurring on the premises of the business. The greater the square footage of the occupancy area, the greater the chance for risk of general liability. Certainly, the performance of those services are also a significant liability risk but are usually covered by separate policies such as professional liability or errors and omissions.
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