What Is General Liability Insurance?

If you operate a business, you may be wondering if you should obtain general liability insurance. Perhaps you’re trying to determine if your business has enough risk to make it worth the investment, or maybe you just want to know if it’s legally required for you to have coverage.

This guide will discuss the ways in which general liability insurance can protect your business, what exactly general liability insurance covers, how much coverage you should pursue, and more.

What Is General Liability Insurance?

Commercial general liability insurance is a crucial component of comprehensive business insurance that protects companies from a wide range of potential liabilities. This type of coverage safeguards businesses against financial losses resulting from bodily injury, property damage, personal injury, and advertising injury claims. It typically covers legal fees, settlements, and judgments if a third party sues a business is sued for causing them harm.

As an essential part of a robust business insurance plan, commercial general liability insurance provides peace of mind to business owners by allowing them to focus on their operations without constant worry about potential lawsuits. 

While the specific coverage can vary based on the policy and provider, it generally includes protection for incidents that occur on the business premises, during operations, or as a result of the company’s products or services. Many clients and landlords require businesses to carry this insurance, making it a vital component for maintaining professional relationships and securing contracts.

What Does General Liability Insurance Cover?

General liability insurance provides comprehensive liability coverage to protect your business from having to pay the full cost of common claims that may arise during normal business operations, including:

• Third-Party Bodily Injury: If someone is injured on your business premises, they could potentially make a bodily injury claim against your company. This coverage can help pay for medical expenses or legal bills resulting from a lawsuit.
• Third-Party Property Damage: If a customer’s personal property is damaged or destroyed while on your premises or as a result of your normal business operations, they may be entitled to replacement or repair at your company’s expense.
• Personal and Advertising Injury: This coverage protects against claims arising from your business’s advertising activities or personal injuries caused by your business. If a competing business accuses you of running advertisements that closely resemble its own, for example, it may claim you’re infringing on its business.
• Libel, Slander, and Copyright Infringement: These claims fall under personal and advertising injury coverage. They involve “reputation claims” that result when your business allegedly harms the reputation of another company or individual. Making false statements or infringing on someone else’s copyright during normal business operations are acts that can lead to lawsuits against your business.

What Are the Limits of General Liability Insurance?

While general liability policies do cover a wide variety of claims, there are still some specific areas that remain uncovered by these plans. Below are some of the ways that general liability insurance does not help mitigate your business’ risk.

• Employee injuries – If an employee working at your business falls off a ladder and gets hurt, this falls under the purview of workers compensation insurance rather than general liability insurance.
• Professional mistakes – If your business makes a mistake or fails to follow through on a contract, sale, or agreement, any resulting lawsuit will fall under professional liability insurance rather than general liability insurance.
• Business property damage – Any damages caused by fire, explosions, burst pipes, storms, theft, and vandalism are not covered by general liability insurance. If your place of business is damaged by a storm, it’s your commercial property insurance that will step in to cover those claims.
• Employee discrimination – If one of your employees sues your business for discrimination based on race, gender, age, or any other factor, this falls under the purview of employment practices liability insurance, not your general liability insurance policy.

Is General Liability Insurance Legally Required?

Legally speaking, your business is not required to hold general liability insurance. However, practically speaking, few companies can withstand a significant liability claim without it, and these claims are very common. As many as 40% of all small businesses will experience some sort of liability claim in the next decade.

In addition, many larger companies will not want to do business with a company that does not carry general liability insurance. If you don’t have a liability policy, and someone makes a liability claim against your company, there’s a very strong possibility that you’ll go out of business. This would leave anyone you’re doing business with in a terrible position.

Who Needs General Liability Insurance?

If you own any type of small business, you should at least consider acquiring general liability insurance. Some businesses have such minor risk involved that it may not be necessary. For example, if you’re a sole proprietor who operates a freelance writing and editing business out of your home, there’s no real reason to purchase general liability insurance.

For just about anyone else though, if you’re a small business owner or a contractor, you absolutely should pursue general liability insurance. Even one mishap can bring a lawsuit down on your company that you can’t financially handle, putting you out of business and potentially ruining your personal finances as well.

So in short, if you operate a business that deals with customers on-site or that in any other way puts you at risk of being responsible for injuries, medical payments, or lawsuits, you need general liability insurance.

How Much Coverage Do You Need?

There’s a considerable amount of variance when it comes to the amount of general liability coverage businesses acquire. Depending on the nature of your business, your company’s size, your location, and other factors, you may need significantly more or less coverage than the typical business.

Still, there are some basic facts and figures that can give you a general idea of how much coverage a typical small business will require and what it will cost.

• Independent Contractor or Consultant: If you work alone and have annual revenue under $200,000, you should be able to obtain $1 million in general liability insurance for under $500 per year.
• Small Business: If your company has five or fewer employees and annual revenue of $1 million or less, you will likely spend somewhere between $500 and $1,200 per year on $1 million of general liability insurance.
• Mid-Sized Company: If you own a business with five to ten employees, with an annual revenue under $10 million, general liability insurance will likely cost between $1,000 and $3,000 annually.

What Is Professional Liability Insurance?

We often encounter entrepreneurs who are confused about the difference between general liability and professional liability insurance. While general liability policies typically cover claims like third-party injury and property damage, professional liability is more specifically tailored to your business type.

Professional liability insurance covers claims like mistakes in your company’s professional services, omissions in work performed, and failure to uphold contracts. Depending on the nature of your business, a professional liability policy is an equally important piece of your insurance puzzle.

Final Thoughts

General liability insurance is something that most businesses cannot do without. It covers a great deal of common claims at generally affordable rates. If your business incurs any risk at all, it’s almost always advisable to acquire general liability insurance. It often only takes one claim to wipe out an uninsured business.

While general liability insurance isn’t a catch-all policy, it does cover many of the most common lawsuits filed against businesses. With a few exceptions, it’s advisable for every small business to acquire general liability insurance.