General Liability Insurance: What It Is and Who Needs It

What if you’re running your small business, and everything seems to be going smoothly, but then, one day, you receive a legal notice? Someone claims they were injured on your property or that your product caused damage to their belongings. Suddenly, you’re facing a lawsuit. This is where general liability insurance steps in to save the day.

Today, let’s discuss general liability insurance (GL). You’re in the right place if you’re wondering what it is and whether your business needs it.

What is General Liability Insurance?

General liability insurance, also known as business liability insurance, is like a safety net for your business. It’s there to protect you against lawsuits and claims that can arise from your day-to-day operations. Whether you’re a caterer, plumber, photographer, or any other small business owner, GL insurance covers a wide range of risks, including:

1. Bodily injury and property damage

2. Medical payments

3. Damage to premises rented to you

4. Personal and advertising injury

5. Products-completed

In a nutshell, it’s the shield that guards your business from unexpected financial hits caused by third-party claims.

Who Needs General Liability Insurance?

Now, you might be asking yourself, “Is general liability insurance really necessary for my business?” The answer is a resounding yes, especially if your business interacts with clients, sells products, advertises services, or operates in public spaces.

While it may not be a legal requirement in your state, general liability insurance is a smart and common choice among small business owners for its invaluable protection.

Common Professions That Benefit:

• Accountants or tax preparers

• Consultants

• Contractors

• Freelancers

• Electricians

• Handymen

• Home inspectors

• Janitorial services

• Landscaping companies

• Lawyers

• Marketing agencies

• Real estate agents

• Small business owners

• Technology professionals

Common Scenarios for Why You Need General Liability Insurance:

1. Your clients want you to have insurance: They want to insulate themselves from any third-party risks.

2. You work with vendors or clients: This scenario applies to businesses that interact with others, whether collaborating with vendors or serving clients.

3. You work with independent contractors: This is a must if you have freelancers or contractors helping out.

4. You hire temporary or seasonal help: This scenario kicks in when you hire extra hands for busy times.

5. Your small business is open to the public: If you have a small business that welcomes customers or clients, this applies to you.

6. You use other places for business: GL insurance is essential if you’re not always in your own space for work—like if you use a coworking space or rent places for events.

7. You advertise and market your business: Promoting your business? Then, having some liability coverage makes sense to protect against advertising risks.

8. You use social media: If social media is part of your business, you need GL.

If your business falls into one of these categories, you should consider getting general liability coverage to protect you from a range of claims.

Common General Liability Insurance Questions

Does the law require general liability insurance?

The short answer is no; it’s not usually a legal mandate. However, here’s the catch: if you skip out on general liability insurance, you could find yourself stuck with all the bills if there’s a claim against your business.

If a client slips on a rug while visiting your office and ends up with a broken hip, without general liability insurance, you’ll pay the bill. So, while it’s not forced by law, it definitely should be a priority for your business’s financial safety net.

Does general liability insurance have a deductible?

Yes, it does. When shopping for a policy, you get to pick your general liability deductible. This is the amount you agree to pay out of your own pocket before your coverage kicks in to help.

Does general liability insurance cover theft?

Not quite. General liability insurance focuses on third-party damages, not your stuff. You’re the “first party,” and the “third party” comes after you with a claim. This means that general liability won’t have your back if someone swipes your equipment or breaks into your office. For that, you’ll want to look into business personal property coverage as part of a business owners policy (BOP).

Pro tip: Read Business Owner’s Policy Insurance (BOP): What it is and Why Every Small Business Should Get One today!

Is general liability insurance tax deductible?

Since general liability premiums are considered a cost of doing business, you can usually write them off when tax time rolls around. Of course, it’s always wise to double-check with a tax professional.

Cost of General Liability Insurance for Small Businesses

Various risks come with the territory of a contractor or small business owner. For many, coverage needs to go beyond medical bills and legal fees and align with the specific risks they face. Whether you’re a construction worker, a coffee shop owner, an electrician, or any other small business owner, having the right general liability insurance tailored to your profession is crucial.

One notable aspect is the option for blanket additional insured coverage. This extension of your existing liability insurance can be invaluable, especially when dealing with contracts and employers who require this endorsement. It ensures that your coverage extends to other entities involved in your work, providing an extra layer of protection.

Your actual rate will depend on several factors specific to your business, such as your profession and the number of employees. This is where speaking with an insurance representative can be incredibly beneficial. They can guide you through the process, help you understand the cost implications, and provide money-saving tips along the way.

5 Factors That Affect Your General Liability Insurance Rates

On average, general liability insurance costs small businesses around $42 a month or about $504 a year. However, the kind of business you run impacts your rates:

1. High-risk or Low-Risk? If you work in something high-risk like construction, you might end up paying more than a graphic designer, for example.

2. Experience:  The more years you’ve been in the game with no or very few claims, the better your chances are of getting a decent premium.

3. Claims History: If you’ve had many claims in the past, expect to pay more. Conversely, you’ll likely spend less if you’ve had few or no claims.

4. Location: If your shop is in a sleepy, low-crime area, you might luck out with a cheaper premium compared to a bustling, high-crime spot.

5. Coverage Limits: The amount of coverage you want plays a role, so increasing your coverage limits will sometimes increase your costs.

General Liability vs. Professional Liability Insurance: What’s the Difference?

Navigating the world of insurance can be daunting for small business owners. One common question is, “What’s the difference between general liability and professional liability insurance?”

Understanding the nuances between these two types of coverage is crucial for safeguarding your business against potential risks and liabilities.

Similarities: Protecting Your Business

Both general liability and professional liability insurance share the core purpose of protecting your business:

Protect Against Business Liabilities

Financial Safety Net: A single lawsuit can potentially wreak havoc on a small business. Whether it’s a slip-and-fall accident at your storefront or a dissatisfied client alleging professional negligence, these insurances step in to alleviate the financial burden, ensuring your business can weather the storm of a claim.

Meeting Requirements: Many employers or clients require specific amounts of general liability or professional liability coverage before engaging in business. Having these insurances in place protects your business and opens doors to new opportunities.

Differences: Understanding Coverage Areas:

Where they genuinely differ lies in the types of risks they cover:

1. General Liability

Physical Injury and Property Damage: This insurance protects against bodily injury or property damage resulting from your day-to-day operations. Imagine a customer falling through a board on a newly constructed deck. In this case, a general liability policy would cover the contractor against claims of faulty workmanship and bodily injury.

2. General Liability

Professional Services or Advice: Professional liability, often known as errors and omissions insurance (E&O), covers professional services or advice negligence. Here, the focus is on financial loss rather than physical injury or property damage. Consider a consultant who provides flawed advice that leads to financial loss for their client. In such a case, professional liability insurance protects the consultant from the repercussions of their advice.

The key takeaway is that your business might benefit from both types of insurance, as they serve different but equally essential purposes. General liability shields against physical harm and property damage, while professional liability guards against financial losses due to professional negligence.

Pro tip: General liability is strictly for claims against you by others for their injuries or property damage. Professional liability insurance steps in if you’re worried about professional slip-ups or negligence claims. 

To ensure your business is adequately protected, it is advisable to speak with a licensed insurance professional. They can provide tailored advice based on your specific business needs and risks.

Choosing the Right Coverage

When you’re ready to get general liability insurance, remember to choose a local insurance agent with the expertise to give you a customized quote that meets your unique business needs. Insurance is rarely a one-size-fits-all approach, and you’ll need to work with a professional who will take the time to ensure you get the coverage you need to cover your risks.

Remember, running a business involves some level of risk, but having the right insurance can give you peace of mind and keep your focus where it belongs: on growing your business.

Need to learn more about general liability insurance?

Our agents are ready to help you out, so contact us to learn how we can customize your insurance policies to meet your needs.

*Disclaimer: We offer content for informational purposes; Co-operative Insurance Companies may not provide all the services or products listed here. Please contact your local agent to learn how we can help with your insurance needs.

Sources

Forbes. Best General Liability Insurance For Small Business Of 2024. https://www.forbes.com/advisor/business-insurance/best-general-liability-insurance-for-small-business/

Insureon. General Liability Insurance.https://www.insureon.com/small-business-insurance/general-liability/faq

Nerd Wallet. Best Small-Business Insurance 2024: Compare Companies and Coverage. https://www.nerdwallet.com/article/small-business/business-insurance

Nerd Wallet. How Much Is General Liability Insurance? https://www.nerdwallet.com/article/small-business/general-liability-insurance-cost

Progressive. General Liability Insurance. https://www.progressivecommercial.com/business-insurance/general-liability-insurance/

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