What Is General Liability Insurance & Do I Need It?
No matter where you are in your small business insurance journey, your insurance foundation is a general liability insurance policy. But what is general liability insurance and do you need it for your business?
If you want the quick answer, it’s 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.
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What Is General Liability Insurance?
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.
The Importance Of General Liability Insurance
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 reason insurance is important is because of the risk to your business or personal assets if something happens that you can’t pay for out-of-pocket. Unless you have a reservoir of cash on hand to pay medical bills and lawyer fees, general liability insurance is necessary for people in any industry.
What General Liability Insurance 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, tweets or Instagram 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 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.
- Fire/Flood/Property Damage Sustained From A Natural Disaster: Some natural disasters are covered under commercial property insurance. (Flood and earthquake 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? I 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 (or if a leader property suffers damage).
- Vandalism: Damage to your building as a result of vandalism is covered under your commercial property insurance.
- 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.
When Does A Business Need General Liability Insurance?
I know this sounds 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 at other people’s homes
- You work with clients that might require proof of insurance
- You offer clients a physical product
- You run advertisements
How General Liability Policies Work
Someone slips and falls and sues you? The general liability policy will pay for medical and legal bills. Your insurance company will provide lawyers and assistance to guide you through the process. Here’s how your plan will work.
Let’s say you insure your small business for one-million dollars of garage 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. (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 — including the date, time, and names of any witnesses.
Additional Types Of Liability Insurance
For all of the things your basic general liability insurance doesn’t cover, there are other insurance policies 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 tornados or hurricanes 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.
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.
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.
In most states, you need worker’s 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.
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 property leader suffers damage and foot traffic is limited to your establishment.
How Much Does General Liability Cost?
For general liability insurance, the cost is affordable and within range for even small businesses.
According to Insureon, over 53% of small businesses pay between $400-$600 a year for general liability insurance and 21% paid less than $400 a year. 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 garage liability plan.
Finding The Right Small Business Insurance Policy
The process for finding a great policy boils down to research. Knowing the averages for your industry and comparing competing rates will help you make the best decision for your business. Start with an idea of the risks your business might face (are you just online? You will have a lower premium than someone with a storefront) and then come equipped to your first meeting with an insurance company with the knowledge of what you need.
When you meet with an insurance expert, discuss whether it is cost effective to bundle your personal and business insurance policies. If not, go shopping for 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 ruinous. With insurance, no one’s small business story has to end that way.