What Is General Liability Insurance?

What is general liability insurance?

General liability insurance, also known as commercial general liability insurance, provides coverage against claims that may arise when a third party is injured on your premises — for example, if a customer trips on the carpet in your store and hurts their arm — or an employee accidentally damages a customer’s property. General liability insurance doesn’t protect against claims that relate to professional or business practices. 

Who needs general liability insurance?

Business owners who sell products or provide services to customers need general liability insurance. A significant number of small businesses will face property or general liability claims for unexpected incidents and accidents. General liability insurance can protect a business against the costs associated with property or general liability claims.

Here are some types of businesses that need general liability insurance:

• Sole proprietors (e.g., contractors, electricians, painters)
• Small businesses (e.g., beauty shops, photography studios)
• Large companies (e.g., marketing firms, IT firms)

Businesses that engage in the following activities or business situations could also benefit from general liability insurance:

• Meeting with clients in person
• Working on or with a customer’s property
• Representing a client either directly or through employees
• Conducting business activities at third-party locations
• Advertising the business
• Signing a contract with another business

Most states do not legally require a business to maintain general liability insurance. However, each state has its own insurance laws that affect what a business needs in its general liability insurance policy to ensure adequate coverage of costs related to legal claims. 

What does general liability insurance cover?

General liability insurance provides coverage for the following types of claims:

• Third-party bodily injury (e.g., a customer falls and becomes injured in front of your store)
• Third-party property damage (e.g., your employee damages the floor when installing equipment at a customer’s residence)
• Reputational harm (e.g., libel, slander)
• Advertising injury (e.g., copyright infringement, false claims)
• Damage to rental property (e.g., due to fire, flood, explosion and other causes)

Reputational harm

Your business can be sued by a competitor if you or an employee makes up unfounded claims about them. These claims could result in a loss of customers, revenue and trust for that competitor. General liability insurance can cover the legal costs involved in defending your business against the following types of claims:

• Libel (i.e., defaming someone in print, on the radio, on TV or over the internet)
• Slander (i.e., defaming someone through oral statements or gestures)
• Defamation of the competitor’s products or services
• Violation of the competitor’s privacy

Advertising injury

A third party can sue your business based on perceived or actual offenses that arise in advertising your company, products or services. General liability insurance provides coverage of the legal costs associated with defending these claims. Advertising injury can occur through the following means:

• Theft of a competitor’s ideas
• Copyright infringement
• False advertising claims about a competitor

Covered costs

General liability insurance helps to cover the following costs resulting from claims against your business:

• Medical expenses of a customer who slipped and fell on the premises of your business
• Repair costs if your employee accidentally damaged something while working at a customer’s home
• Legal costs that arise from participating in court
• Lawsuit judgments and settlements

Exclusions

General liability insurance does not cover the following:

• Damage to your business property (these types of claims are covered by commercial property insurance)
• Mistakes made in your business’s professional services (these types of claims are covered by professional liability insurance)
• Work-related injuries or illnesses (these types of claims are covered by a workers’ compensation insurance policy)

How much does general liability insurance cost?

On average, general liability insurance costs $1,057 annually, according to The Hartford. However, the exact costs vary depending on the following factors:

• Location: Insurance providers price general liability insurance based on where the business is located.
• Type of business: Some types of businesses, like construction companies, face higher risks and thus have a greater likelihood of incurring more lawsuits than other industries. That results in higher general liability insurance premiums.
• Business size/number of employees and clients: Businesses with more employees and clients typically require more general liability insurance coverage than single-person businesses do.
• Experience/years in business: Because they have built trust with their insurance provider and clients, more experienced business owners may pay less for insurance than newer businesses might.
• Claim history: A business with a history of claims has a higher risk of potential lawsuits in the eyes of insurance providers and thus will pay more for a general liability policy.
• Policy details: Coverage limits, deductibles and other details within the general liability insurance policy affect the cost of premiums.

Types of liability insurance

Depending on your industry and professional situation, you may need more specialized liability insurance. Here are some other types of liability insurance:

Professional liability insurance

Professional liability insurance, also known as professional indemnity insurance, provides businesses with coverage against clients’ legal claims of negligence, malpractice and misrepresentation. The insurance coverage pays for the following expenses:

• Legal fees
• Judgments 
• Settlements
• Compensatory damages
• Punitive damages
• Economic or business damages resulting from the lawsuit

Professional liability insurance covers clients’ claims of wrongdoing made during the policy period. Policies are usually arranged on a claims-made basis, while insurance coverage applies only to claims that are made during the policy period. 

A typical professional liability policy protects the insured against financial loss arising from a claim made during the policy period for a covered error, omission or negligent act that takes place in the conduct of the insured’s professional business.

Commercial umbrella insurance

Commercial umbrella insurance provides coverage on top of what is already covered by existing liability policies. It helps the insured pay for legal claims that exceed their current policy limits so they do not have to pay out of pocket. Commercial umbrella insurance typically covers the following expenses:

• Legal fees
• Judgments and settlements
• Medical costs

Commercial automobile insurance

Commercial automobile insurance provides coverage if you or your employees are involved in an auto accident while doing business and are found at fault. This type of insurance covers the costs of repairing or replacing damaged property, as well as medical expenses. Commercial auto insurance is ideal if your business meets any of these criteria:

• You own, lease or rent vehicles.
• You have employees who use their own vehicles for their job.
• You have employees who operate owned, leased or rented company vehicles.

Management liability insurance

Management liability insurance protects a business’s directors and officers against legal claims. This type of insurance can usually be added to a business owner’s policy.

Employment practices liability insurance

Employment practices liability insurance covers the legal defense costs and settlements or judgments that can arise if a past or current employee sues you for wrongful employment practices. Here are some types of employment-related claims:

• Discrimination
• Harassment
• Retaliation
• Wrongful termination
• Wrongful discipline
• Wrongful failure to promote

Cyber liability insurance

Cybersecurity (or cyber liability) insurance covers your business against the legal costs and damages related to cybercrime and cybersecurity issues. The insurance covers the following expenses:

• Incident response costs
• Legal, forensic and breach management costs
• System damage and restoration fees
• System business interruption

Coverage limits for general liability insurance

Your policy provides coverage up to a certain limit. For most businesses, this falls into one of two categories: an aggregate limit or a per-occurrence limit. The aggregate limit is the maximum amount your insurance company will pay for all claims annually, whereas a per-occurrence limit is the most your insurer will pay per claim. 

How to choose general liability insurance

Here are the steps you’ll take to purchase general liability insurance:

1. Assess your business risks. Start by outlining any risks associated with your business. It’s also a good idea to check any legal requirements for your industry. 
2. Determine your coverage needs. Once you understand the kinds of risks your business faces, you can determine the types of coverage you need. A licensed agent or broker can make recommendations as well. 
3. Gather your paperwork. It’s helpful to gather the necessary paperwork and documentation before you begin the application process. Most insurance companies will want a list of your employees, your estimated business revenue for the coming year, and information on your business’s activities and associated risks. 
4. Compare insurance providers. Apply for quotes from at least three insurers, and compare the offers you receive. Make sure to review the coverage options, policy exclusions and premiums. 

How do you get proof of general liability insurance?

You might be required to show proof of general liability insurance when working with another business. In these instances, you typically need to show a certificate of insurance (COI). 

A COI is a document that contains a quick overview of the key details found within an insurance policy. It also acts as verification of insurance and proof of specific insurance coverage.

A COI should include the following information:

• Name of the policyholder
• Effective date of the policy
• Type of coverage
• Policy limits

Requesting a certificate of insurance

To request a COI, contact your insurance company or broker and provide the following information:

• Contact information
• Policy number
• Certificate holder’s name
• Certificate holder’s contact information
• Information of other individuals or companies to be listed on the certificate
• Copy of the insurance requirements or contract

Jamie Johnson contributed to this article.