General Business Liability Insurance – How it Works and What Coverage is Right for You

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General Business Liability Insurance – How it Works and What Coverage is Right for You

By Caron_Beesley, Contributor
Published: January 11, 2012 Updated: September 26, 2016

If you’ve heard it once, you’ve heard it a thousand times: if you’re starting a business you’re going to need general liability insurance. But what does that mean? What protection does it afford?  How do you determine your coverage needs?  How does it work?

Read on.

What is General Liability Insurance?

Liability insurance (also known as Commercial General Business Liability) protects a company’s assets and pays for obligations – medical costs, for example –incurred if someone gets hurt on your property or when there are property damages or injuries caused by you or your employees. Liability insurance also covers the cost of your legal defense and any settlement or award should you be successfully sued.  Typically these include compensatory damages, nonmonetary losses suffered by the injured party, and punitive damages. 

General liability insurance can also protect you against any liability as a tenant if you cause damage to a property that you rent, such as by fire or other covered loss.

Finally, it can also cover claims of false or misleading advertising, including libel, slander, and copyright infringement.  

Does your Business Need Liability Insurance?

We live in a litigious society and even if you think you’re unlikely to face a claim, getting insurance is a wise investment that doesn’t cost much – annual premiums range from $750 to $2,000 depending on your line of business and coverage needs. That’s certainly a lot less than the thousands, if not millions, of dollars you may need to spend fighting your case in court.

General liability insurance can be purchased on its own, but it can also be included as part of a Business Owner’s Policy (BOP) which bundles liability and property insurance into one policy. If you have a BOP, check it to see what your liability coverage limit is. You may find that it is quite low, in which case you may need additional coverage through a separate policy.

How to Determine Your Coverage Needs

The coverage you need depends on the type of business you are in and the perceived risk associated with it. For example, a building contractor will need more coverage than a web designer or consultant. Your business location is also another factor that comes into play. For example, some states tend to award more in damages to plaintiffs claiming personal injury than others. Talk to a licensed insurance broker for advice on this before you rush out and buy a policy.

As mentioned above, if you fall into the lower risk category, you may want to consider a Business Owner’s Policy (BOP) which combines general liability and property insurance at a cost-effective rate.

Confused about where to start? Take a look at SBA’s Five Tips for Buying Business Insurance which includes tips on assessing your risk, shopping around, BOPs, and maintenance of your policy.

How General Liability Insurance Works

As with many insurance plans, your general liability policy will outline the maximum amount the insurance company will pay against a liability claim. So, if your small business gets sued for $250,000 for medical costs associated with an injury caused by a worksite hazard, plus an additional $100,000 in legal fees, but your coverage maxes out at $300,000, then you are responsible for paying the difference of $50,000.

 If you are on the higher end of the risk scale and already have general liability insurance, you can also opt for excess insurance or umbrella insurance that increases your coverage limits. This will cover you in situations in which you’re worried that your existing coverage won’t cover all your costs should someone file and win a claim against you.

Be sure to do your industry research before you invest in any policy. Sometimes a client contract will require that your business has the appropriate coverage or umbrella insurance to perform work on their behalf. Likewise, some construction contractors may add you to their general liability policy as an additional name to be insured for the duration of the project.

Filing a Claim

If an incident occurs that may lead to a claim, you should notify your insurance company or agent immediately. Be prepared to explain what has happened in detail including the time, date, the names of any witnesses, and any other pertinent information.

What other Insurance do I Need?

Besides general liability insurance, most states also require that businesses with employees pay workers’ compensation insurance and state disability insurance. For specific requirements, read more about Insurance Requirements for Employers.  

Depending on the nature of your business, you may also need auto insurance, home business insurance, alcohol liability insurance (if you sell or serve alcohol), product liability insurance, environmental and pollution insurance, and more. Read more about small business insurance requirements.

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About the Author:

Caron Beesley


Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley


Got my general liability insurance last week, it was an easy acquisition thanks to some professional help It was quick and painless.
I want to open a new small bussines as electrical contractor in Texas , Texas state require $1.200.000 general liability insurance plus workers comp which in my case I would to cover me and one more person for now,...can someone tell me how much should I pay every month appromately for this kind of insurance ?? thanks
Is there any extended coverage that is recommended for a small food company selling packaged beef jerky products? Would the general business liability insurance coverage suffice? We are strictly online with no brick and mortar establishment at this time.
A business owners policy provides additional coverage that is not included in a general liability policy. These policies are typically for main street and office locations. If a business owners policy is available, and it provides the necessary coverage limits, it will typically be a better bet if your business class is eligible.
It is important to remember that general liability insurance does not cover errors and omissions for which you will need a separate policy such as errors and omissions insurance or professional liability particularly if you are an attorney, doctor, accountant or insurance agent. These are also the most commonly sued professionals in the US.
Thanks for sharing! Surely a lot of people will benefit on knowing this. Insurance can really help a lot of us.
Every concern about environment collision and unusual act then little awareness about Public liability quote could protect us. It is a basic term and many of us still not aware from it. So here we need to upgrade our knowledge and make our self or our business secure by PL insurance.
This is a helpful article on general business liability insurance. I'm trying to rent a small office and the landlord requires this type of insurance policy, but I have never needed (so I thought) insurance before. I didn't know that liability insurance could also cover me for copyright issues as well as for personal injury & property damage. That's good to know.
Here comes a very well explanation on contractor's Public Liability Insurance. With the great example of doctors, people will likely to understand this insurance easily. Thanks for this.This post was edited to remove a link. Please review our Community Best Practices for more information about how best to participate in our online discussions. Thank you.
It is always a good idea to talk with a trusted insurance agent to discuss your liability insurance needs. That way you do not get surprised when the unexpected happens and your basic coverage does not cover your losses.


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