General liability insurance protects your business from claims that happen as a result of normal business operations. It provides coverage to small businesses for claims resulting from bodily injury, property damage, copyright infringement, and reputation harm.
Let’s look more closely at what general liability insurance covers, what it doesn’t cover, and who needs it.
What is General Liability Insurance?
General liability insurance coverage protects your business from some of the most common claims business owners face. Paying for any one of these would be incredibly expensive without some kind of business insurance to cover you.
Third-party bodily injury
If you run a brick-and-mortar business and a customer is injured at your store, you’re responsible for covering their medical costs. Not to mention, if it’s determined that the accident is your fault, that customer could decide to sue you.
And unfortunately, these types of accidents are not uncommon. According to The Hartford, 10% of businesses have a customer slip and fall on their premises, and these accidents cost about $30,000 to resolve. General liability insurance will cover any costs involved with a customer accident.
Third-party property damage
Property damage is another common liability claim. This happens when a customer’s property is damaged while they are at your business or when a customer’s property is damaged while you’re visiting them on business.
A good example of this is a general contractor accidentally damaging a client’s property while working on their home. As a business owner, you’re responsible for paying for the necessary repairs. General liability insurance will cover some or all of the associated costs.
Copyright infringement happens when you’re accused of stealing someone else’s ideas and using them in your marketing or advertising. It can also involve claims that you copied another company’s product and sold it as your own. This can be an expensive problem to fix, especially if it leads to a lawsuit.
Reputation harm happens when you make a public statement about a business owner that hurts their business. According to The Hartford, reputation management is the most expensive problem most businesses encounter and can cost up to $50,000 to fix.
What Isn’t Covered By Business Liability Insurance?
Business liability insurance is a comprehensive insurance policy that covers some of the most common incidents business owners face. But it doesn’t cover everything, and knowing what isn’t covered is just as important as knowing what is.
Of course, no insurance policy is the same, so you should check the policy guidelines for your general liability insurance policy. But here are some of the most common exclusions:
- Auto accidents: general liability insurance doesn’t cover auto accidents that happen while you or your employees are on the job. Commercial auto insurance can protect you from these types of accidents.
- Employee injuries: If an employee becomes injured as a result of their work, general liability insurance doesn’t cover that either. Workers’ compensation insurance protects employees from workplace accidents or illnesses.
- Damage to your property: General liability insurance protects you from damage to a customer’s property, but it won’t protect you from your own property damage. Commercial property insurance can help with that.
- Professional errors: Finally, general liability insurance won’t cover you if a customer sues you due to a professional error that harms their business. Professional liability insurance will help with that.
And it’s always a good idea to be aware of the coverage limits on your general liability policy. If you feel like your coverage is a bit low, it may be worthwhile to purchase a commercial umbrella insurance policy to cover more expensive claims.
How Much Coverage Do I Need?
According to Insureon, most small businesses choose a standard coverage limit of $1 million per occurrence with a $2 million aggregate policy limit. So for a single claim, you’ll receive up to $1 million with a $2 million limit for that policy period.
However, you will have to pay the insurance deductible before the insurance company will payout on your claim. You’ll choose your deductible when you initially purchase general liability insurance.
The size of your deductible, the type of business you run, and your industry will all affect your monthly insurance rate. Insureon also found that the median cost of general liability insurance is $42 per month or $500 annually.
Who Needs General Liability Insurance?
Most states won’t require business owners to carry small business liability insurance, so you can purchase this insurance at your own discretion. But if you choose to forgo general liability insurance, you could be putting your business and your livelihood at risk.
The truth is, most businesses need general liability insurance, especially if you own an office or storefront that’s open to customers or vendors. And some clients may not want to do business with you unless you can show proof of insurance.
You should strongly consider purchasing business liability insurance if any of the following apply to your business:
- You have a store or office building that’s open to clients, customers, or vendors
- You regularly do work on a client’s physical property
- You regularly create advertising or marketing campaigns for your business
- You use social media for advertising your business and communicating with customers
- You rent or own commercial property
The Bottom Line
General liability insurance is relatively inexpensive to purchase, and it can save you from some of the most common accidents small businesses face. Suppose a customer is injured at your workplace, or you accidentally damage their property. In that case, business liability insurance will protect you from any medical bills and lawsuits that arise as a result.
Do I need liability insurance for my small business?
Most small businesses can benefit from general liability insurance. It is relatively inexpensive to purchase, and it can protect you financially if you’re ever involved in a lawsuit or if a customer is injured on your property.
If you operate an office or storefront that’s open to customers, work on a customer’s property, or own commercial property, you should probably purchase small business liability insurance.
What does general liability insurance cover for a small business?
General liability insurance covers claims related to the following incidents:
- Bodily injury: A customer has an accident or is injured on your business premises.
- Property damage: You accidentally damage a customer’s property during business operations.
- Copyright infringement: You’re accused of stealing another company’s ideas and using them in a marketing or advertising campaign.
- Reputation harm: You’re accused of slandering another company, and it damages their business.
Disclaimer: Fundbox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
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