What is General Liability Insurance?
As a small business owner, you’re navigating a complex world.
From building a website to registering your new LLC, the last thing on your mind is insurance. It’s nearly everyone’s least favorite i-word and frequently a completely uncharted territory for small business owners.
But in a world where 35% – 56% of small businesses are involved in some type of litigation every year, insurance is something you can’t afford to ignore. However, that doesn’t make it any easier to understand.
If you’re not sure what general liability insurance is or you’re wondering if you need it for your business, you’re not alone. But you are in the right place. This article talks about what it covers, what it doesn’t cover, who should have it, and how much it costs.
Let’s get started!
An Introduction to General Liability Insurance
General liability insurance protects your business if you or your employees do something that causes bodily injury or property damage to someone else. It also covers accidents that occur on your property.
If you have insurance, it may help cover your business’s financial responsibility. This burden can come from hiring an attorney, other legal fees, and/or any damages you owe as a result of the claim filed against you.
If a customer slips, falls, and breaks their wrist because of a wet spot on your coffee shop floor, they can file a claim against you. Your commercial general liability insurance will help cover any legal fees and medical expenses that arise if they do.
What’s the Difference Between Professional and General Liability?
There are numerous types of insurance meant to protect you and your business operations. And it’s not always easy to understand the differences between insurance policies. While many of them sound similar in nature, they’re not the same.
Professional liability insurance protects your business from negligence or malpractice claims that typically result in a financial loss for a client or customer. For example, a lawyer giving bad legal advice that causes a client to lose money.
Related: What Is Professional Liability Insurance?
General liability insurance covers situations where someone is physically injured or property damage due to something you or your employees did. It can also cover accidents or injuries that happen at your place of business.
Who Needs General Liability Insurance?
Although it isn’t required by law, you could end up owing hundreds of thousands of dollars because someone tripped over the area rug in your waiting room and hit their head on your coffee table.
These types of accidents happen all the time, so any business type should consider commercial general liability insurance coverage.
If this happens and you can’t afford it, that could mean shutting your doors forever. So unless you can afford these types of claims, having a business general liability policy can literally mean life and death for your company.
But general liability insurance is beneficial even if you don’t have a physical business location as it also covers advertising and reputation damages. That being said, you should strongly consider buying coverage if you:
- Run or manage marketing campaigns online
- Frequently visit other peoples’ property to do your job
- Own a physical location with frequent non-employee visitors
- Have any risk of accidentally damaging property or hurting someone
- Perform any type of advertising online or offline
Even if you created a corporation or Limited Liability Company (LLC) to protect your personal assets, insurance is still needed to protect their business assets. One accident instantly can literally wipe out several years of hard work you put in growing your business.
How Does General Liability Protect Your Business?
Anyone interacting with your business can file a claim against you. This could be vendors, customers, delivery drivers, visitors, or even other companies. But commercial general liability insurance can help your business cover the costs resulting from these claims.
It can help you pay for:
- Hiring an attorney and other legal defense fees
- Medical costs if someone was hurt
- Money owed for property damages
- Settlement or judgment payouts
Ultimately, this means you’re not stuck paying for everything on your own. Or filing for bankruptcy and shutting down for good.
What Does General Liability Insurance Cover?
The specifics of business general liability insurance vary based on the plan you choose. But most policies include coverage for the same situations, and it’s essential to understand what those situations are.
General liability insurance covers damages and attorney’s fees resulting from:
- Bodily injury at your place of business
- Bodily injury of a non-employee (third party) at a worksite
- Damage to someone else’s property
- Damages to your landlord’s property (if you rent)
- Damages your products cause to people or property
- Lawsuits for libel or slander
- Copyright infringement cases (advertising injury)
What Doesn’t General Liability Insurance Cover?
It’s equally important to understand what commercial general liability insurance doesn’t cover, so you know what other types of insurance policies you need to consider for your business.
So, commercial general liability insurance doesn’t cover things like:
- Oversights, errors, or missed deadlines (See Professional Liability Insurance)
- Business assets such as equipment and inventory (See Business Property Insurance)
- Damage to a property you own
- Injured employees (See Worker’s Compensation Insurance)
- Company vehicles (See Commercial Auto Insurance)
- Discrimination cases
- Losses from cyber attacks (See Cyber Liability Insurance)
Is General Liability Insurance Required?
Unlike professional liability insurance, commercial general liability insurance isn’t required by law. But many small businesses won’t work with companies that don’t have an insurance policy in place.
Imagine hiring a company to do landscaping for your law firm. Halfway through, they get hit with a property damage claim from another business they worked with. If they don’t have general business liability insurance and can’t afford to handle the claim, they may have to shut down.
So, you’re left with a half-finished landscaping job and the burden of hiring someone else.
What Happens if a Business Doesn’t have General Liability Insurance?
If no one files a personal injury, third party bodily injury, advertising injury, or property damage claim against you, nothing happens. But if a third party does file one of these claims, it can be catastrophic, especially for small businesses with limited cash on hand.
General liability insurance protects you from paying legal, defense costs, and medical fees on your own. These costs can range anywhere from a few hundred dollars to hundreds of thousands of dollars. So, it’s hard to imagine handling this as a small business.
But that’s exactly what happens if you don’t have general liability insurance. If you’re like most small businesses, this is something you simply can’t afford. So, you run the risk of losing your business if you’re found responsible for damages.
How Much Does General Liability Insurance Cost?
The average cost of general liability insurance is around $40/month. Most small business owners (48%) pay between $300 – $600 per year. But your industry, policy limits, and location play a large role in what you can expect to pay for general liability insurance.
The riskier your industry, the more you have to pay for coverage.
Businesses may be able to reduce their general liability insurance cost by bundling all of their insurance in a Business Owner’s Policy (BOP) or umbrella policy.
How Is a General Liability Policy Calculated?
Each business is unique, so individual insurance policies from insurance companies need to be treated the same. No two businesses have the same plan. So, the cost of commercial general liability insurance depends on several factors, including:
- Your industry
- Business location
- Risk involved
- Claims history
- Coverage limits
- Size of your business
However, there are a few things you can do to help keep insurance premiums low. You can bundle insurance policies together, proactively manage and prevent accidents, and pay for an entire year upfront.
How Do I Get General Liability Insurance?
Getting started with an insurance company is as easy as filling out an online form or giving them a call. They usually want to review your business and documentation to evaluate the risk associated with it. From there, they’ll send you a custom quote you can either accept, negotiate, or decline.
It can be quite time-consuming to individually call several insurance agents to find the best price. Alternatively, you can use a free comparison tool like Coverwallet to get quotes on small business insurance. They ask you a series of questions about your business to prepare a personalized comparison from the top insurers in your area and industry for free.