The Complete Guide To General Liability Insurance For Small Business
General liability insurance protects you and your business in the event of a lawsuit or an accident. Read this guide to find out everything you need to know about general liability insurance!
Welcome to our complete guide to general liability insurance for business! In this guide, we’ll cover whether or not your small business needs general liability insurance, how much a policy might cost, and how you can get one.
Table of Contents
- What Is General Liability Insurance Coverage?
- How Does General Liability Insurance Work?
- General Liability Insurance Coverage
- Who Needs General Liability Insurance?
- How Much Is General Liability Insurance?
- How To Get General Liability Insurance For Small Businesses
- The Benefits Of General Liability Insurance For Businesses
- FAQS About General Liability For Small Business
What Is General Liability Insurance Coverage?
If you’ve heard of general liability insurance and are not sure if your small business really needs it, the quick answer is YES, you need it.
An accident can strike at any time and you will need to be prepared to protect your business. Not only is general liability an important part of your risk management plan, but most other policies are either bundled with it or need it as a foundation.
General liability is crucial to protecting your small business from lawsuits and accidents, and on its own, it can be affordable for a business of any size. If you’re insurance-less and you’re starting your business, here is where you begin.
According to the government, up to 53% of small businesses experience a lawsuit. General liability insurance protects you and your business in the event of a lawsuit or an accident. Specifically, this policy will help cover costs of property damage, bodily injury claims, or false advertising claims. This foundational component of insurance is even more important in our highly litigious society because you cannot predict all the different ways something may go wrong. (Or possibly you’re quite adept at imagining every little thing that may go wrong and that’s why you’ve found your way here.)
Sometimes general liability is called “slip and fall” insurance because one of the best ways to think about the policy is to ask yourself: if someone were to slip and fall in my place of business, could I cover their medical costs or the cost of a potential lawsuit? What if someone sued you for libel after an advertising campaign?
General liability insurance can also protect you if you or an employee damages property at a client’s house. If an employee spills an entire venti black coffee on a client’s expensive white couch, hey, general liability can cover that, too.
How Does General Liability Insurance Work?
Someone slips and falls in your store and sues you? The general liability policy will pay for the medical and legal bills. Your insurance company will provide lawyers and assistance to guide you through the process. Here’s how your general liability insurance plan will work.
Let’s say you insure your small business for one-million dollars of general liability coverage. If you have someone slip and fall (sticking with the classic example) and the medical bills and the legal defense (including judgments and settlements) is more than one million dollars, you would only owe any balance over your policy limit. If it was one million three hundred dollars, you’d only owe the three hundred dollars.
(Keep in mind, this would be after your deductible is paid, you will set your deductible limit with your insurance expert.)
If something happens that you think might lead to a lawsuit, it’s never a bad idea to call your insurance company and make a record of the incident right away. Make sure you note the date, time, and names of any witnesses. This is important information for a potential claim and for yourself to look back at any video footage you may have of an incident.
Additional Types Of Liability Insurance
For all of the things your basic general liability insurance doesn’t cover, there are other additional insurance policies you can carry that will help provide you with the coverage you need. General liability is the foundation; once you’ve started with that policy, it’s easy to add others and bundle your policies with other insurance options. So, what options do you have?
Commercial Property Insurance
This insurance covers damage to your property because of fire or vandalism. Strong winds push a tree into your building? This is the insurance for those claims.
Business Owner’s Policy
This is a policy that combines both general liability and commercial property insurance into a bundle. Sometimes this policy also includes business interruption service. Bundling policies in this way often will save you money in the long run.
Directors & Officers Liability Insurance
If the directors and officers (the main shareholders in the company) suffer a financial loss because of a lawsuit brought against them personally, this protects them and helps pay for a legal defense.
It should probably go without saying that intentional illegal acts are not covered by insurance.
Professional Indemnity Insurance
Do you give any sort of advice as part of your business? Protect yourself from lawsuits directly related to bad advice that causes financial or personal damages to a client.
Product Liability Insurance
General liability insurance will cover some, but not all, lawsuits related to product liability. However, if your product is risky, extra product liability insurance is a must. Businesses involved with food production may specifically want this kind of policy.
Cyber Risk Insurance
A data breach is a risk every business with an online presence (especially an online store) might face. If data is comprised, there are lengthy consumer rules to follow and cyber risk insurance will help pay for legal fees and facilitate the complicated process for you. Some payment processors even offer their own insurance policies or have protocols for these kinds of data breaches to protect your customer’s information.
In most states, you need workers’ compensation to cover employee injuries. Texas is the lone hold-out with zero worker’s compensation guidelines, but all other 49 states have rules that state you must provide worker’s compensation if you have employees. Do your research to familiarize yourself with your state’s minimum coverage requirements.
Business Interruption Insurance
If your business has to close because of a disaster or accident, business interruption insurance will cover your lost income or the costs of temporary relocation. This policy could even protect you if a leader property suffers damage. Not sure if a store near your business counts as a leader property? If your business derives its foot traffic from a more profitable and well-known store, that store is considered a leader property; if the leader property suffers a loss, and it affects your store, you may be protected from those income losses via business interruption insurance.
General Liability Insurance Coverage
Now that we’ve gone over some specific policies that can be added to general liability insurance coverage, we’ll break down exactly what general liability insurance policies can and cannot cover. This information will help you determine if you even need to consider extra policies once you’ve obtained general liability coverage.
What General Liability For Business Covers
A basic general liability package covers the following situations:
- Bodily Injury To Someone Or Property Damage Because Of Your Business/Employees: If a customer slips and falls on a spilled margarita or your contractor breaks a client’s toilet while working at their home, this insurance will cover the medical bills for your customer, legal costs to defend yourself in a lawsuit, and help pay for third-party repairs.
- Product Liability For A Faulty Product: If your restaurant makes the five o’clock news after a spread of E. coli or your product spontaneously bursts into flame, your insurance company will cover the litigation costs of those two lawsuits.
- A Lawsuit For Slander, Libel, Or Copyright Infringement: Many or most small businesses have social media accounts and with the fast and furious pace of the internet, social media posts can have a quick way of gaining attention, for better or for worse. Libel occurs when you print untruths about someone and slander is when you speak those untruths to other people. Many businesses, small and large alike, have been the subject of lawsuits because of something written on the internet or an ill-conceived advertisement. A joke, a meme, an accusation about another business: all of it is another way your business is at risk.
What General Liability Insurance For Business Doesn’t Cover
While general liability policies cover the incidents listed above, it’s not catch-all insurance for all possible accidents or lawsuits. Here are some of the things you’d need additional insurance to protect yourself from:
- Negligence: If it’s proven that accidents happened because of your own negligence, the insurance company doesn’t have to pay the claim. This is the most common reason a claim will be denied.
- Fire/Flood/Property Damage Sustained From A Natural Disaster: Some natural disasters are covered under commercial property insurance. Flood and earthquake insurance are often extra endorsements.
- Protection From Giving Bad Advice: If having clients and giving advice is part of your business model, this insurance protects you from a lawsuit that’s a result of your bad advice. Honestly, why doesn’t this insurance exist for everyday life? We don’t know.
- The Loss Of Income If You Need To Close Your Doors: Business interruption insurance will help with lost income and the cost of relocation if a disaster causes you to shut down your business. It will even help with the loss of income if a leader property suffers damage.
- Vandalism: Damage to your building as a result of vandalism is covered under commercial property insurance policies.
- Employee Injuries: While general liability will protect clients and customers, it’s not there to protect workers from the financial burden of an injury on the job. Any business with a single employee (state laws apply) needs worker’s compensation insurance to cover employee injuries.
- Car Accidents: If you use your car for business or if you have a fleet of vehicles you use, you will need commercial auto insurance.
Who Needs General Liability Insurance?
This may sound repetitive, but it’s true. Who needs general liability insurance? The businesses who didn’t think they would need it and suddenly find themselves facing a lawsuit. Look, you can’t prepare for every potential accident and risk, and you benefit from having basic coverage. Frivolous (or not-so-frivolous) lawsuits will happen to the majority of small businesses. If you are still on the fence, you should definitely consider a general liability plan if:
- You have a physical storefront
- Your business has a social media presence
- You do business in other people’s homes
- You work with clients that might require proof of insurance
- You offer clients a physical product
- You run advertisements
How Much Is General Liability Insurance?
For general liability insurance, the cost is affordable and within range for even small businesses.
In an Insureon analysis of 28,000 small business owners’ commercial insurance policies, the median cost of a general liability policy was $42 per month or $500 per year. The median cost of a business owner’s policy was $53 per month or $636 annually.
Some of the things that may affect that yearly premium are:
- Your specific risks
- How much liability insurance you need
- What type of business you run
- The size of your business
- How many employees you have
- The location of your business
Cheap liability insurance is possible and should be a convincing argument to start with a basic general liability plan.
How To Get General Liability Insurance For Small Businesses
The process of finding a great policy boils down to research. Before you get a general liability insurance policy, there are a couple of things you have to know to make sure you’re getting the best coverage for your business at the lowest price. These things include:
- The Averages For Your Industry: Compare competing rates to help you make the best decision for your business.
- The Risks: Start with an idea of the risks your business might face. Online-only companies will have a lower premium than a business with a physical storefront.
- If Bundling Is For You: Discuss with an insurance expert if it’s cost-effective to bundle your personal and business insurance policies. If not, it’s time for you to go insurance policy shopping!
- The Best Policy: Many sites like Coverwallet, Coverhound, and Insureon will comparison shop for you and walk you through the steps required to make an insurance purchase.
Your business needs protection. Don’t make the mistake of under-insuring your business out of optimism or denial and finding yourself in financial ruin. For roughly a dollar a day, you can rest easy and not spend any more energy worrying about small accidents that could become very big problems down the line. With insurance, no one’s small business story has to end that way.
The Benefits Of General Liability Insurance For Businesses
Since general liability is the foundation for most business insurance policies, putting together a general liability plan should be at the top of your risk management list. In addition to helping you out in case you are sued, this policy is the starting point on which to build your expanding insurance coverage.
The main benefit of liability insurance (for small business owners especially) is that it greatly mitigates the risk to your business or personal assets if something happens that you can’t pay for out-of-pocket. Unless you have a chunk of cash set aside to pay medical bills and lawyer fees, general liability insurance is necessary for businesses in any industry. With relatively low monthly costs, vast options for coverage, more providers than you could ever need, and the peace of mind it provides, having general liability insurance for your business has almost no cons.
Breathe easier knowing that your employees, customers, products, and commercial property are all safe at the end of the day now that you have the perfect insurance policies for your business!