Today, a spilled cup of coffee or the twist of a knee on your property can result in a lawsuit. As a business owner, you need to be acutely aware that what appears to be a minor incident could result in a big legal problem. Without general liability insurance, you could be facing costly out-of-pocket costs that could bankrupt your business.
What is General Liability Insurance?
General liability insurance is a type of business insurance that protects the assets of your business in the event it is sued for something perceived to have been done—or a confirmed incident—that injured someone or caused damage to their property.
A general liability policy will include reimbursement for legal fees and damages in a covered claim and/or lawsuit. Bodily injury, property damage, personal injury, and general damages are normally covered. Punitive damages are usually not covered as they are awarded when it is determined the act was intentional.
Why You Need General Liability Insurance
We recommend that most businesses should carry general liability insurance because it offers comprehensive coverage. If you’re wondering why you need this business insurance, here are a few reasons:
- Example #1: A customer at your gas station claims that a piece of your signage fell and hit their car and they’re demanding you foot the bill for the damage. Because you have a general liability insurance policy, your insurance company will pay to repair the damage.
- Example #2: As a real estate agent, you claimed on social media that your brokerage is “better than the rest.” Unfortunately, you mistakenly tag another brokerage in your comment. They sue you for slandering their business. This claim can be covered under the “advertising injury” portion of your policy.
- Example #3: A patient at your psychiatry office claims they slipped on your icy sidewalk and broke their arm. They’re requesting that you cover their medical bills and lost wages until they can work again. Luckily, your general liability policy will cover these costs.
If you don’t have general liability, all of these costs would be coming out of your pocket.
Aggregate Limit vs. Per-Occurrence Limit
General liability insurance policies are usually capped in two different ways, with an aggregate limit and a per-occurrence limit.
- Aggregate Limit: The aggregate limit is the maximum amount your insurance company will pay for any number of claims during a given year/policy period.
- Per-Occurrence Limit: The per-occurrence limit is the maximum amount your insurance company will pay per claim filed.
Is General Liability Insurance Legally Required?
General liability insurance isn’t usually required by law (in most states). However, some states do require insurance coverage to become licensed in various professions. Check with the insurance agent you’re working with to find out what if anything is required by law. If your licensed agent can’t answer your question, check your state insurance commissioners' website.
How Much Business Liability Insurance Do You Need?
Now that you understand why you need general liability, let’s dive into how much coverage you need to protect your business.
General Liability Coverage Limits
The average insurance company will offer a policy that will pay up to $1 million per occurrence, with a maximum aggregate of $2 million. However, some start as low as $300,000 and go as high as $2 million for the average small business. The coverage can also vary according to the portion of your policy:
- Medical Expenses: This portion of the policy covers any necessary medical expenses someone needs to recover from an injury. Some insurance policies cap this coverage around $10,000. If someone claims their injuries will cost far more than that, they usually opt to sue your business for damages.
- Personal and Advertising Injury: The limit associated with advertising injury is usually the same as the overall and per-occurrence policy limits.
- Damage to Rented Space: Some insurance companies will also help pay for property damage to the space you’re renting/leasing. It’s usually capped either at the same as your aggregate limit, or $1 million—whichever is lower.
How Your Insurance Agent Will Calculate How Much You Need
So how much liability insurance does your business need? An insurance agent will as you some key questions to help give you an idea of the policy limits you need to protect your company.
- How big is your business?
- Where is your business located?
- What services do you offer?
- How many employees do you have?
- Is your business an LLC, partnership, or sole proprietorship?
These are just a few of the questions they may ask to gauge the coverage you need.
When You Would Need Additional Coverage
So when would you need additional coverage than the limits already in place? If your agent believes your liability is higher than what a general liability policy might cover, they may suggest a commercial umbrella policy. This can cover anything that exceeds the underlying policy (and sometimes exclusions) at a better rate than raising the policy limits of your original policy.
You will also need additional coverage for things not covered by general liability, such as:
These are just a few of the coverages you may need.
How Is Your Business Structured?
One last thing you’ll want to consider when you’re assessing your risk is how your business is structured. If your business is incorporated (i.e. LLC) and you’re sued, the most you’ll lose is the business assets. However, if your business is a sole proprietorship, you can be personally held responsible for any settlements or judgments against your business. In this case, you’ll need significantly higher policy limits to protect your family.
How Much Does General Liability Insurance Cost?
The cost of general liability insurance depends on the policy limits you choose and numerous other factors. To learn more about what influences the cost, check out our post about the average cost of general liability insurance.
Get a Free General Liability Insurance Quote
Every small business owner wants their business to survive and thrive, right? Let us help you protect your business from the different risks it faces by helping you get the right insurance—at the exact amount of coverage you need. If you want to get a quote online, complete the form at the top of the page. To speak with a specialist, call us at 877-907-5267. We'll help you get the protection you need.