What Is General Liability Insurance?
General liability insurance is a coverage that protects your business against certain types of common damage claims. If you don’t have general liability insurance, you will likely need to cover the cost of those claims yourself, using your own assets.
With general liability insurance, your business is protected from having to pay the full cost of the following common claims:
- Third-party bodily injury - If someone is injured on your business’ premises, they could potentially make a claim of bodily injury against your company. Covered claims can help pay for medical expenses or legal bills from a lawsuit.
Example: A customer slips and falls on a wet spot on the floor of your business, breaking their arm. They sue your company and your general liability insurance covers the cost of their medical bills and lost wages.
- Third-party property damage - If a customer’s personal property is damaged or destroyed while on your premises, they may be entitled to replace or repair their item at your company’s expense. Third-party property damage could also apply in a situation like this:
Example: One of your employees is operating equipment on your property, when they accidentally damage a neighbor’s building. Your general liability policy helps cover costs incurred repairing the damage to the neighbor’s property.
- Advertising liability - If a competing business in your industry accuses your business of running advertisements that closely resemble their own, they may claim that you’re infringing on their business.
Example: Your business debuts a new advertising slogan that is very similar to the catchphrase used by a competitor. They decide to sue you for your advertising practices, which are covered by your general liability policy.
- Libel, slander, and copyright - These “reputation claims” result when your business harms the reputation of another company. Making false statements or infringing on someone else’s copyright are both acts that can get your business sued.
Example: In an interview with a local TV news crew, you make the claim that your business is more efficient than a leading competitor. Your competitor sees the report on the news and refutes the claim, suing your business for damaging their reputation unfairly.
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.
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.