General Liability Insurance - A Comprehensive Guide
There’s a lot you are faced with when operating or opening a business. From hiring employees to building a client base, there are a lot of moving parts to any company, and some things can be forgotten when caught up in the swing of things. But the one thing you never want to overlook is insurance, specifically general liability insurance.
General liability insurance can help protect you and your business should you be faced with an accident. This post serves as a guide to help you understand what general liability is, what is and isn’t covered under it, and how much insurance coverage you should buy. Like life itself, running a business can be unpredictable. General liability insurance can help make handling the unpredictable go a bit smoother.
What is General Liability Insurance?
General liability insurance is a commercial insurance policy that protects your business from a wide variety of risks. Considered to be the first type of insurance policy you should look into when establishing your business, general liability helps you after an accident occurs either on your property or off. Maybe someone falls on your commercial property, or you find yourself in a copyright infringement lawsuit. General liability can be there to help support you after a variety of accidents.
Who is Covered With General Liability?
As previously mentioned, general liability helps to financially protect you and your business, but it can also provide coverage to others you work with. Outlined below is a look at how you benefit from general liability insurance along with who is protected under the policy:
- Employees - Naturally, general liability protects your business, including your employees. If they end up with accusations against them, the policy can help them pay for medical costs or legal fees.
- Vendors - Some companies distribute their products to vendors to be sold in different locations. With liability insurance, these companies or organizations are covered should they be hit with any claims from selling your product.
- Wholesaler or Manufacturer - If you sell products from wholesalers or manufacturers and a customer is harmed by a product, general liability protects you despite the product originating from outside your shop.
Does Your Business Need General Liability Insurance?
Technically, no. There is no law on the books stating businesses, small or large, must carry general liability insurance in any capacity. However, it would be very unwise of you to forego such a policy. When it comes to purchasing any kind of insurance, you need to remember that you never know what the future holds. One day your business can be thriving, and then the next, your whole empire has a brush with bankruptcy. The following section explores what costs you could be facing if you fail to purchase the proper amount of general liability insurance.
What Happens if You Forego Liability Insurance Coverage?
The cost for a legal team can get very expensive, very fast if you do not have insurance. You even run the chance of bankrupting your business. On average, legal counsel can cost $100 an hour, and that may be on the cheap end. Lawyers can easily exceed those rates, especially if you have a long, complicated case, like those surrounding accusations of libel or slander. The price only grows if you end up having the case taken to court. Court costs can be around $75,000, some even going higher. If the case is dropped, you can still be on the hook for a number of fees thereafter.
But lacking general liability insurance isn’t just a financial issue. Not having such coverage can be very off-putting for your customers and other companies you partner with. Some may even outright refuse to do business with you. When you don’t carry such coverage, others you work with won’t feel protected, and rightfully so. For this reason, among many others, it is best to get some level of general liability insurance coverage. Once you have done so, you can share that information with clients and partners via a certification of insurance.
What is Covered Under General Liability?
As previously outlined, general liability insurance works to protect your business from a variety of unfortunate situations. This can include backlash after an advertising stunt or injury on your business’s property. Explored below are the different instances general liability insurance will cover you for should you find yourself and your business in trouble.
This is one of the most common cases a business may make a claim for. Bodily injury coverage refers to if someone on your commercial property gets hurt. This could result from a customer tripping or slipping on your floor. With general liability insurance, the medical costs related to their injury will be covered. This coverage is also extended to any of your employees, but only if they are not the ones hurt.
Property damage is also a very common claim when it comes to liability insurance. If someone’s personal property is damaged while they are at your business, your general liability insurance will cover it. This coverage also applies to if you are at someone else’s business and damage their property. Electronic data may also be considered personal property and can be covered if you, for example, accidentally delete someone else’s virtual file.
Maybe you have had a marketing campaign gone wrong. Without realizing it or not, you included art or logos that are eerily similar to another company. Next thing you know, you are hit with lawsuits and public criticism. During this time, general liability insurance will help to cover any losses from disgraced advertising campaigns or violation of another company’s copyright.
Also considered to be personal liabilities, causing harm to another business’s reputation may land you with a lawsuit. There could be a case for libel or slander. General liability insurance will assist you if this occurs. The coverage also extends to copyright infringement, invasion of property or privacy, and wrongful eviction. If you are responsible for any of the following, general liability will help cover you in whatever way it can.
As has been briefly touched on in the previous sections, general liability will help cover the cost of legal defenses should you be sued for an issue with your business. Hiring a legal team and defense can be a very pricey process. This kind of business insurance will help ease those costs. As you have seen in a previous section, lacking liability insurance can be detrimental to your finances.
What is Not Covered Under General Liability Insurance?
While there is a lot that general liability covers, this is also much that it will not. Outlined below are issues you may encounter with your business, but coverage will not come from your general liability plan. Coverage for most of what follows has to be purchased via a different type of insurance policy.
If your company owns vehicles and frequently uses them to make deliveries or businesses of any kind, you will want to get coverage from a commercial auto insurance policy. If you or an employee ends up in a crash in a company-owned vehicle, a general liability plan will not cover you or anyone else involved in the accident.
If your employee suffers an injury or falls sick while working, general liability will not cover any payments to them. Instead, you should have workers’ compensation available. When you are required to offer workers compensation varies by state, but most of them mandate it after you have taken on at least one employee, excluding yourself. It is important to carry a workers compensation policy because general liability will not cover any employees’ medical bills should they suffer any injury when doing their job. Refusing to carry such a policy can result in you having to pay an excessive fine or even face jail time.
Physical damage to your commercial property will not be covered by general liability insurance. Should anything happen, you will want to have commercial property insurance. This can typically be bought alongside general liability. If the damage results in you having to temporarily close your business, you will need business interruption insurance in order to have coverage during the time of restoration.
If your business is sued for negligence, general liability insurance will not cover those legal fees. This also includes if you, as the business owner, are sued directly. If you want to protect yourself in the case of being sued for negligence, you will need a professional liability insurance policy.
Intentional Damage by Employees
If it is found that the claim you are trying to make was intentionally done, general liability will not cover you. This will be the case if both you or your employee plot to cause damage or other harm in order to receive the insurance payout. This act can be very damaging for your company. It is not wise nor legal to engage in insurance fraud.
Damage to Customer’s Property
This is related to if a customer has entrusted you with their property. While you are in possession of their item, general liability will not be there to assist you if it sustains damage. Most likely, you will have to handle the consequences of such an event by yourself. Any small business that specializes in storing, cleaning, or servicing other people’s items should be mindful of this as they go about their business.
Business interruption insurance is a type of commercial policy that can help cover your business expenses if it’s closed down for an extended period, due to any number of circumstances. This might include lost income and payroll during that time as well as other necessary costs like rent or lease payments on space where operations normally take place
How Much Does General Liability Cost on Average?
General liability insurance premiums can range greatly. This is due to the fact that insurance is highly personalized. Many factors go into determining your annual rates. This will be explored further below, but for now, it is best to get a basic idea of general liability premiums. On average, general liability insurance premiums can cost you anywhere from $300 to $1,000. It is rare for your business to be on the lower end of the spectrum but not impossible. Generally, a small business can see rates starting at $750 per year or $63 per month. Some premiums may even be more in the area of $2,000, which is around $167 per month. While these ranges may be helpful to get basic insight, the best way to get an idea of the cost of insurance is by pulling quotes from a variety of insurance companies.
What Determines General Liability Rates?
As previously mentioned, a lot of factors go into determining liability insurance prices. No two businesses are the same, making it hard to give an average estimation. But what is outlined below may be able to give you some idea of how high or low your business’s rates will be. These are generally what insurance companies look into when determining annual premiums.
This is not too uncommon to come across when looking for insurance. Pretty much any type of policy out there will be partially based on where you live. Companies may look at something as specific as the zip code your commercial property is in to determine premiums. If where your business is located has more liabilities or a higher crime rate, then your rates will be higher than those of companies in a neighboring town.
How many people you hired can determine how much you will be paying for general liability insurance. More employees in your business naturally mean a higher chance of something going wrong. Companies also need a way to establish the size of your business.
Some industries are considered more high-risk than others. A retail store may not be paying the same premiums as a construction company. More can go wrong with the latter, and insurance companies need to be sure they can cover any and all claims. If you find yourself in a more risky occupation, you will be charged higher premiums than others.
This is common practice with insurance companies. Before they determine your monthly rate, they will look into if you or your company has made any insurance claims in the past. If they find you have a habit of filing claims, your premiums will reflect that. It is also good to keep in mind that your rates will rise after you make a claim with your current insurance company. It would be in your best interest to practice being a safe and smart business owner.
There are many miscellaneous details about your business that insurance companies will look into when you are trying to buy a policy. Some information they obtain includes past and current business activities, the size of your business, and how long ago your company was established. You cannot do much to control these aspects of your business, but it is still best to remember these will factor into your insurance premiums.
Similar to when you are buying other types of insurance, how much coverage you want directly impacts your premiums. The more coverage you want, the more you will have to pay each month and vice versa. But try not to get too hung up on this. While lower premiums are very appealing, you never want to be underinsured. You could end up paying a lot out of pocket after an accident, causing financial stress that could have been avoided.
Are There Any General Liability Insurance Discounts?
Any specific discounts would come from the insurance company you buy a policy from. Sometimes companies will offer loyalty discounts or other benefits for filing with them. It would be best to inquire about these as you are shopping around for insurance. Pulling quotes and rates from multiple insurance companies can be very beneficial. This allows you to compare rates and find the best policy for your business. Remember to also look both nationally and locally as you never know who is holding the perfect policy. Another step you can take to get better premiums is practicing risk management at your business. If you employ procedures to create a safer work environment, you may make fewer claims which help your rates.
How Much Coverage Should You Buy?
The typical amount of liability insurance coverage a small business buys is $1 million per incident and a $2 million aggregate policy limit. Some businesses may choose to add on more insurance coverage. It is not uncommon to find a small business owner who doubles their policy limits. An umbrella policy can really help give your business even more coverage if you feel you need it.
When deciding how much general liability insurance you need, it is best to keep in mind some of the costs for certain occurrences. One person slipping and falling in your business could result in a claim of around $20,000. If you have to deal with a reputational harm lawsuit, that may cost you about $50,000. If your policy limit is only $200,000 and you encounter medical costs that are $300,000, you will have to come up with the extra $100,000. Be sure to do research and really look at the practices your business engages in. That can help to give you an idea of how much insurance you will need.
What is The Best Liability Insurance Policy For Your LLC?
When figuring how much general liability insurance your LLC needs, it would be best to first look at what industry your business is in. If you’re frequently meeting with clients, working on other’s property, handling customer belongings, or have strong marketing campaigns, it would be very wise to get higher general liability coverage. If you have a presence on social media and use it as the main tool for spreading your business, it would not hurt to have general liability insurance as protection. Your location could also be a good reason to maybe increase your coverage.
Having multiple commercial properties or one with high customer traffic may lead to more liability claims. As previously mentioned, you can always expand coverage with an umbrella policy should you worry about your protection. Also always make sure you are not skimming by with a minimum amount of coverage. Medical costs and legal defenses can get very expensive very fast. Take a good, long hard look at your business and see where you stand in your industry. That will always be the best way to decide how much protection you may need. So, never wait to get liability insurance. The faster you obtain a policy, the more willing others may be to work with you.