General liability insurance is a business insurance policy offering coverage for damage to another’s property or person. It’s also known as “business liability insurance.” It may be purchased as part of a more comprehensive business owner’s policy (BOP) or as a separate plan.
How does general liability insurance work?
General liability insurance works much like other types of business insurance. If your business is found liable for an accident or injury to someone while they are engaged with your business, the plan will help to pay out covered expenses. It may not cover all of these costs, however. Anything above the payment threshold for your plan will be your responsibility.
What does general liability insurance cover?
Any personal injury or property damage costs associated with a lawsuit against your business may be covered by general liability insurance. These include the following:
- Third-party property damage, such as a customer’s car or building.
- Third-party personal injury, such as a broken bone from a slip and fall.
- Advertising loss caused by using someone else’s copyrighted materials for your ads.
- Reputational damage, which can happen in cases of slander or libel by your, your employees, or contractors.
What does general liability insurance not cover?
Business expenses not covered by general liability include damage to your business or the injury and illness of your employees. These situations have their own insurance policies and may be covered by a comprehensive insurance policy.
Business insurance, including general liability, won’t cover you in the course of doing illegal activity or if you violate the terms of the insurance contract. Business policies include additional exclusions, so you’ll want to choose your plan carefully before committing to one.
How much does general liability insurance cost?
The cost of a business liability policy varies by the business. The size of your business, the product you sell, and the region you operate may determine your risk, and higher risks come with a higher premium cost. Policies with higher limits and lower deductibles will cost more than those with less coverage. Providers like Next Insurance sell general liability insurance online, bringing down costs.
If you have a history of lawsuits or expensive business claims, it could also increase premiums. Choosing an insurer familiar with your industry may help you get the best deal on a policy that’s well-suited for your particular risks and needs.
When should you get general liability insurance?
Businesses that want to protect against lawsuits and can’t afford to pay legal fees and settlement costs out of pocket should consider general liability insurance, especially if you engage in the following activities:
- You sell products or services to the public.
- You create advertising, including on social media or through digital marketing methods.
- Your industry requires it (medical, financial, etc.).
- You have employees or contractors that work on your premises.
- You go into people’s homes or on private property to do your work.
Your work is particularly dangerous or highly regulated for safety reasons Some vendors or clients may require you to show you have insurance before you do business together. Proof of insurance is a standard requirement for operating in some industries or cities. Check any contract for this requirement before signing, and be prepared to have to pay for it as part of ongoing business expenses.
Frequently asked questions (FAQs)
What’s the difference between general and professional liability insurance?
Professional liability insurance, also called “errors and omissions” insurance, covers a business against claims of errors in providing products or services. Examples of these mistakes include failing to meet contractual obligations or being negligent while conducting business.
This insurance differs from general liability insurance in that it is designed to pay for financial losses caused by the business to the affected customer. General liability insurance, on the other hand, covers physical damage to property or medical costs from an accident. In some cases, it can pay for damages caused by business advertising, such as misusing a copyright or slander.
Is general liability insurance worth it?
A good question to ask yourself when choosing insurance coverage is, “Can I afford to pay for damages out of pocket if something were to go wrong?” According to a 2023 Class Action Survey by Carlton Fields, in 2022 U.S. companies spent a record $3.5 billion to defend against class action lawsuits. The rising costs to protect against claims may warrant investing in this type of insurance to avoid the possibility of corporate bankruptcy.
Do you need business liability insurance for an LLC?
Limited liability corporations (LLCs) are small businesses with similar needs to large corporations. One of those needs is the ability to pay for lawsuits arising from negligence or damages from an accident. Whether you sell a single product or provide a full suite of consulting services, business liability insurance can fill in the gaps between what you can afford and what lawsuits can cost.
Forming an LLC can help you separate personal assets from your business, protecting your home or car from the effects of a lawsuit. You still need business insurance to keep your business from going under if a lawsuit doesn’t go your way.
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