As a business owner, you are responsible for your work, employees, and customers while they are on your premises. If a customer gets injured or has property damaged because of your business operations, they can sue your business.
General liability insurance is a financial shield that protects your business from the costs of those lawsuits.
What is General Liability Insurance?
Commercial general liability insurance (CGL) is one of the first liability policies you should get when you start your business. It provides defensive coverage against common business risks and shields your company from negligence, professional mistakes, or wrongdoing claims.
This business liability insurance covers your business in many scenarios:
- Injuries on Your Premises: Customer, visitor, or employee injuries on your business property.
- Property Damage: Damages caused by your business or employees.
- Lawsuits for Slander, Libel, or Copyright Infringement: Defends against defamation or intellectual property claims.
Whether it’s a slip and fall, a lawsuit over advertising content, or a professional services error, general liability insurance will pay for legal expenses, settlements, and medical expenses. It’s the broadest professional liability insurance to protect your businesses from claims of all sizes.
What Does General Liability Insurance Cover?
General liability insurance provides broad financial protection for businesses from claims of bodily injuries, property damage, personal injury, and advertising injury.
Coverage goes beyond your businesses location and includes incidents at customer locations or anywhere else your business operates.
The Important types of coverage for General Liability Insurance are listed below.
- Bodily Injury Liability
- Pays medical bills, ambulance charges, and lost wages if someone is injured on your business premises.
- Example: A customer slips on a wet floor in your store and breaks their arm—this covers medical costs.
- Property Damage Liability
- Covers repairs or replacement when your business damages someone else’s property.
- Example: An employee accidentally damages a client’s outdoor sculpture while landscaping.
- Advertising Injury Liability
- Covers attorney fees, legal defense expenses and settlements if your business is sued for copyright infringement, false advertising or misuse of intellectual property.
- Example: Your marketing campaign uses a competitor’s logo by mistake, and they sue you.
- Reputation Harm (Libel & Slander)
- Protects against claims of defamation, invasion of privacy, wrongful eviction, and slander that harm another person’s business reputation.
- Example: A competitor sues you for saying something false about their business.
- Legal Liability
- Covers legal costs, settlements and court costs if your business is sued.
- Example: A client claims your business caused financial loss due to negligence and files a lawsuit.
Whether it’s injuries, property damage, reputation harm, or legal disputes, general liability insurance protects businesses from costly claims and unexpected events.
What is Not Covered by General Liability Insurance?
General liability insurance is broad but not all-encompassing. Knowing its limitations is key to avoiding coverage gaps that expose your business to financial risk. Below are the exceptions:
- Auto Accidents: Business vehicles require separate commercial auto insurance.
- Employee Work-Related Injuries: These are covered under workers compensation insurance, which is mandatory in most states.
- Business Property Damage: Damage to company property, such as buildings, business equipment, or company inventory, is under not covered under this coverage.
- Professional Errors: Mistakes or negligence that cause client financial loss require errors and omissions insurance (E&O), which is a form of professional liability insurance.
- Claims Exceed Policy Limits: If a claim exceeds the liability limit, the business must pay the difference unless it has a commercial umbrella policy for extra coverage.
- Cyber Threats: Cyber-attacks and Data breaches require separate cyber liability insurance.
- Business interruption insurance: Coverage if your business is closed due to factors beyond your control, like natural disasters. This will cover the lost business income from closing your business.
Who Needs General Liability Insurance?
Almost all businesses can need general liability insurance, especially if they do public interactions, social media marketing, off-site operations, or hire contract or temporary workers. Industries that typically need this coverage are:
- Contractors
- Accountants and lawyers
- Marketing agencies
- Service-oriented businesses
- Landscapers
- Restaurants
- Retailers
Is General Liability Insurance Legally Required?
Unlike workers compensation insurance, a general liability insurance policy is not required by law. However, businesses may need it to obtain professional licenses, business contracts, or certain certifications . Many commercial leases also require proof of insurance.
How Much General Liability Coverage Do You Need?
General liability insurance policies have a range of coverage limits. The right amount depends on the amount of business risk. Higher limits offer more protection but cost more. Some businesses opt for a Business Owners Policy (BOP) to combine commercial property insurance with general liability , which is often less expensive than purchasing separate policies.
How Much Does General Liability Insurance Cost?
The monthly premium of general liability insurance varies. $40-$70/month, but can be as low as $300-$1,000/yr or as high as $2,000/yr ($167/month) depending on many factors.
For small businesses, rates start at $750/yr ($63/month), but actual costs depend on the following:
- Annual Sales and Payroll: More revenue and payroll means higher premiums.
- Type of Business and Industry Risks: Some industries have higher liability risks that affect cost.
- Years in Operation and Claims History: Longer, claim-free history means lower rates.
- Location and Business Size: Urban or larger businesses mean higher premiums.
- Coverage Limits and Deductibles: Higher coverage limits and lower deductibles mean higher premiums.
These are just guidelines. The best way to know your actual cost is to get quotes from multiple business insurance companies. Comparing options allows you to find coverage that’s protected and affordable.
What Factors Determine the Cost of General Liability Insurance?
General liability insurance premiums vary because every business is unique. Several key factors impact pricing: industry, location, number of employees, and coverage limits. Understanding these factors will help companies to estimate costs and find the best coverage.
1. Industry and Type of Work
- High-risk industries have more liability and higher premiums. Due to physical risks, a construction contractor might pay $88/month.
- Low-risk industries pay lower premiums. A yoga instructor might pay $15/month since their work is low risk.
2. Business Location
- Businesses in high-traffic or high-crime areas (big cities) have higher premiums due to more accidents, theft, or lawsuits. Insurance companies assess specific zip codes when determining rates.
- Businesses in low-traffic or rural areas pay lower premiums since they have fewer liability risks.
3. Number of Employees
- Larger businesses with more employees have higher premiums since more staff means more accidents and liability claims.
- Smaller businesses with fewer employees pay lower premiums since risk exposure is lower.
4. Company History and Past Claims
- Businesses with frequent claims are at higher risk and will pay higher premiums. Insurance companies review a company’s claim history before determining rates.
- Established businesses with a good track record and few claims get lower premiums. In contrast, new businesses will pay higher rates until they establish themselves.
5. Coverage Limits and Policy Amounts
- Higher limits mean higher premiums. A $1 million per-occurrence limit will cost more than a $500,000 limit since it provides more financial protection.
- Lower limits mean lower premiums, but businesses will be underinsured and face out-of-pocket expenses if a claim exceeds their coverage.
6. Potential Claim Costs to Consider
- A slip-and-fall accident at your business might cost $20,000.* A reputational harm lawsuit could cost $50,000 or more in legal fees and settlements.
- If medical expenses from an accident are $300,000 but your policy is $200,000, your business must pay the remaining $100,000 out of pocket.
7. How to Save on Your Insurance
- Assess your business risks to determine the proper coverage.
- Get quotes from multiple carriers to find the best rate.
- Implement strong safety protocols to reduce accidents and claims.
- Consider an umbrella policy if you need more coverage, especially in high-risk industries.
By understanding these factors, businesses can make informed decisions about business liability insurance policies and find the right balance between cost and protection.
How Much General Liability Insurance Coverage Should You Buy?
The most common types of professional liability coverage for small businesses are $1 million per occurrence and a $2 million aggregate limit per policy period. However, companies with higher risks may opt for higher coverage for aggregate limits.
Typical Claim Costs to Consider are listed below.:
- A slip-and-fall accident in your business can cost $20,000.
- A reputational harm lawsuit could cost $50,000.
- If medical treatment costs exceed your policy limit, such as a $300,000 claim on a $200,000 policy, you would be responsible for the extra $100,000 out of pocket.
Some businesses double their coverage limits, while others opt for an umbrella policy for additional coverage.
Review your business practices, industry risks, and financial exposure for proper insurance coverage.
Do your research to ensure your commercial insurance policy covers your business from unexpected liabilities.
Choosing the right general liability insurance involves evaluating your business risks, understanding coverage options, and comparing providers. A step-by-step guide to help you make an informed decision is listed below.
- Assess Your Business Risks: What are the risks your business faces? Third-party bodily injuries, Third-party property damage, or lawsuits? Research your industry’s requirements to ensure compliance.
- Determine Your Coverage Needs: Based on your business’s risks, how much coverage do you need? Talk to a licensed insurance agent or broker for recommendations.
- Gather Required Documents: Most insurers need employee count, estimated annual revenue, and business activities. Have this information ready to make the application process smoother.
- Compare Insurance Providers: Get quotes from at least three insurers and compare coverage options, policy exclusions, and premiums.
- Understand coverage limits:
- Aggregate Limit: The maximum amount your insurance company will pay for all claims in a policy period.
- Per-Occurrence Limit: The maximum amount your insurance company will pay per claim.
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