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s a business owner, you know how important it is to protect your company from potential risks. One way to do so is to get general liability insurance, which can help cover costs that arise from lawsuits against you and your business. In this article, we’ll cover the ins and outs of general liability insurance, including:
- What general liability insurance is
- How general liability insurance works
- What general liability insurance covers
- How to tell whether your business needs general liability insurance coverage
- Steps for getting general liability insurance
- Cost of general liability insurance
- How to determine your coverage needs
- Additional types of liability insurance
- General liability insurance FAQs
What is general liability insurance?
General liability insurance is a type of insurance policy that protects against third-party claims of bodily injury and property damage.
This insurance covers the policyholder against financial losses arising from lawsuits or other claims made by customers, partners, vendors, or other third parties. General liability insurance is commonly considered a way for businesses to protect themselves against financial losses and potential bankruptcy.
How general liability insurance works
General liability insurance works by providing financial protection to the policyholder in the event of a third-party claim. If the policyholder (in this case, the business owner) is found to be legally responsible for causing bodily injury or property damage to a third party, the insurance company will pay for the costs associated with that claim up to the limit of the policy. This can include costs such as medical expenses, legal fees, and settlements.
The policyholder is responsible for paying the policy premium, which is the cost of insurance coverage. In return, the insurance company provides peace of mind and protection against potential financial losses in the event of a third-party claim.
What general liability insurance covers (and what it doesn’t)
General liability insurance typically covers things like:
- Slip-and-fall accidents on business property
- Injury or damage to third-party property while in the policyholder's care, custody, or control
- Personal injury, not only physical but also personal or professional, including false arrest, libel, or slander
- Products liability, which covers claims arising from the sale of a defective product
- Advertising injury, such as copyright infringement or misappropriation of another's advertising idea
- Bodily injury or property damage caused by the policyholder's operations or products
These are some examples of the types of claims that may be covered by general liability insurance. It is important to note that the specific terms and conditions of a policy will determine the exact coverage provided and the types of claims that are eligible for coverage.
General liability insurance does not cover all types of claims or losses. Some standard exclusions include:
- Professional services, such as those performed by doctors, lawyers, or accountants (who often require separate professional liability insurance)
- Damage to the business owner’s own property or products
- Claims arising from intentional acts or criminal behavior
It is critical to review the specific terms and conditions of a general liability policy to understand exactly what is and is not covered.
How can I tell whether my business needs general liability insurance?
Whether a business needs general liability insurance depends on several factors, including the size and nature of the business, the products or services offered, and the potential for third-party claims.
As a general rule, if a business has any interaction with customers, clients, or members of the public, it is recommended to have general liability insurance in place. This is because there is always a risk of third-party claims arising from incidents such as accidents or damage to property.
Additionally, many businesses are required by law to carry general liability insurance or to have it as a condition of doing business with certain clients or in certain industries. For example, construction companies, service providers, and many other types of businesses may be required to carry general liability insurance as a condition of bidding on certain projects or contracts, especially those set forth by government entities.
Ultimately, business owners decide whether to purchase general liability insurance based on a careful evaluation of the risks associated with their businesses, as well as the potential financial consequences of a third-party claim.
Businesses that might need general liability insurance
Many types of businesses may need general liability insurance. Some examples include:
- Retail stores
- Restaurants and food service establishments
- Building services providers, such as electricians or plumbers
- Construction companies
- Event planners and organizers
- Landscapers and gardeners
This is by no means an exhaustive list, and many other types of businesses may also need general liability insurance. Research your industry to determine what sorts of claims have been made by customers or partners to decide whether or not you need coverage and, if you do, how much.
Steps for getting general liability insurance
Here are the general steps you can take to obtain general liability insurance:
- Assess the risks associated with your business: Evaluate the risks associated with your operations, products, and services to determine the level of coverage you need.
- Shop around for insurance: Gather quotes from several insurance providers to compare coverage options and premium costs. Vendors, partners, and members of industry or local associations can help with sourcing providers.
- Choose an insurance provider: After evaluating the options, choose an insurance provider that offers the coverage you need at a price you can afford.
- Provide information about your business: The insurance company will ask for information about your business, including operations, products, and services, to determine the level of risk and the appropriate coverage.
- Review and sign: Carefully review the policy and make sure you understand the coverage and exclusions. Once you are satisfied, sign the policy and start paying the premium.
- Review the policy annually: It is a good idea to review the policy annually to make sure the coverage still meets your needs. You might need to make necessary, periodic changes based on new local or industry requirements.
By following these steps, you can obtain the general liability insurance coverage you need to protect against third-party claims and potential financial losses.
Costs of general liability insurance
The cost of general liability insurance varies based on several factors, including the size and nature of the business, the products or services offered, the business location, and the level of coverage needed. Other factors that may impact the cost of general liability insurance include the policyholder's industry, the claims history of the business, and the deductible chosen.
On average, small businesses can expect to pay between $300 and $1,000 per year for general liability insurance coverage.
Remember that while the cost of general liability insurance is an important consideration, it should not be the only factor in choosing a policy. Business owners should also consider the level of coverage provided, financial stability, and reputation of the insurance provider. By carefully evaluating these factors, you can choose a policy that offers the coverage you need at a price point you can afford.
Figuring out how much coverage your business will need
You can determine how much general liability coverage you will need by evaluating the potential risks associated with your operations, products, and services, as well as your overall financial situation.
Here are some steps you can take to determine your coverage needs:
- Assess the risks: Evaluate the risks associated with the business, including the likelihood of a third-party claim arising from bodily injury or property damage. Consider the types of products or services offered, the location of the business, and any past claims history.
- Determine maximum financial exposure: Estimate the maximum financial exposure your business would face in the event of a third-party claim, including the cost of legal fees, settlements, loss of customers, and other expenses.
- Consider your business's financial situation: Evaluate the financial position of your business, including its assets and overall financial strength, to determine the level of coverage that would provide adequate protection.
- Consult with an insurance professional: An insurance professional can provide expert advice on the level of coverage that would be appropriate for the specific business, taking into account the risks and financial situation.
By following these steps, you can determine the amount of general liability coverage you will need to protect your business against potential financial losses in the event of a third-party claim.
Other types of liability insurance
In addition to general liability insurance, there are several other types of insurance that small business owners may want to consider. Some of these include:
- Workers' compensation insurance: Required in most states, this insurance covers medical expenses and lost wages for employees who are injured or become ill as a result of their work.
- Property insurance: Covers damage to the business's physical property, including buildings, equipment, and inventory, due to events such as fire, theft, and natural disasters.
- Business interruption insurance: Covers lost income and expenses if the business is forced to close temporarily due to a covered event, such as a fire or natural disaster.
- Professional liability insurance: Also known as errors and omissions insurance, this type of coverage protects against claims of negligence or mistakes in the performance of professional services.
- Cyber liability insurance: Covers the costs associated with a data breach, including notification expenses, credit monitoring for affected individuals, and liability for third-party claims.
- Commercial auto insurance: Required for businesses that own or use vehicles for commercial purposes, such as fleet owners and delivery and logistics services providers, this insurance covers damage to vehicles and injuries to drivers and passengers.
- Product liability insurance: Covers claims arising from the sale of a defective product, including medical expenses, legal fees, and settlements.
FAQs
Does general liability cover theft?
General liability insurance does not typically cover theft. General liability insurance covers third-party claims of bodily injury or property damage that arise from the business's operations, products, or services. Theft of the business's property or the property of others is not considered a third-party claim and is thus not covered by general liability insurance.
To protect against losses from theft, you may need to purchase a separate property insurance policy, also known as a commercial property insurance policy, which covers damage or loss to the business's physical property, including buildings, equipment, and inventory, due to events such as theft, fire, and natural disasters.
Is general liability insurance required by law?
General liability insurance is not required by law in the U.S. However, companies in some industries, such as construction and certain types of service providers, may be required to carry general liability insurance as a condition of doing business with clients or as a requirement for obtaining necessary licenses and permits.
In addition, many businesses are required by their landlords or clients to carry general liability insurance as a condition of doing business with them. This is often referred to as proof of insurance or a certificate of insurance.
While general liability insurance is not required by law, it is highly recommended for most businesses, as it protects against third-party claims of bodily injury or property damage that may arise from the business's operations, products, or services. By carrying general liability insurance, a business can protect itself against potential financial losses that could result from a third-party claim.
Does general liability insurance carry a deductible?
General liability insurance typically does carry a deductible, which is the amount that the policyholder is responsible for paying before the insurance coverage kicks in. Similar to the deductible of a health insurance policy, the deductible of a general liability insurance policy is a type of cost-sharing mechanism that helps to reduce the overall cost of the insurance policy.
The amount of the deductible can vary depending on the policy and the specific insurance company. A business owner can choose the amount of the deductible based on their risk tolerance and budget. A higher deductible can result in a lower premium, while a lower deductible can provide more coverage for more minor losses but at a higher cost.
It's important to understand the terms and conditions of your policy, including the deductible, so that you know what to expect if you need to make a claim. An insurance agent or broker can help you understand the trade-offs involved in selecting a deductible, as well as how to choose an appropriate amount of insurance coverage.
Key takeaways
General liability insurance might not be legally required, but small business owners should undoubtedly investigate obtaining some form of coverage in order to protect themselves, their customers, and others.
Lawsuits or other claims made by customers could lead to substantial liabilities and financial losses, which small business owners most likely do not want. General liability insurance is commonly seen as a way to protect against such losses and potential bankruptcy.
Consult with an insurance professional to determine whether your business should consider protection and how much.
Novo Platform Inc. strives to provide accurate information but cannot guarantee that this content is correct, complete, or up-to-date. This page is for informational purposes only and is not financial or legal advice nor an endorsement of any third-party products or services. All products and services are presented without warranty. Novo Platform Inc. does not provide any financial or legal advice, and you should consult your own financial, legal, or tax advisors.
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