What is general liability insurance and why do you need it?

What is general liability insurance?

General liability insurance protects businesses against financial losses that could result from claims or lawsuits that a business is liable for someone else’s bodily injury, property damage, or personal injury. Sounds like a lot, right? Let’s take a slightly deeper look. Basically, it is a fundamental insurance coverage for businesses of all sizes and types.

A general liability (GL) policy can cover medical expenses, lost wages, and legal fees if someone is injured on your business premises or as a result of your business activities. For example, if a customer slips and falls in your store and sues for injuries, this coverage would come into play.

In addition, it could cover the costs associated with damage to someone else's property caused by your business operations. For instance, if your employee accidentally damages a client's expensive equipment while providing a service, this coverage helps cover the repair or replacement costs.

A general liability policy can help protect your business against claims of slander or libel. If you’re sued because you or an employee wrote or said something false and unflattering about someone else, your general liability policy could cover defense and other costs.

General liability insurance also helps cover the cost of legal defense, including attorney fees, court costs, and settlements or judgments if you are sued. This is a big one. Imagine if you didn’t have this coverage? It’s essential for protecting your business's financial stability in the event of a lawsuit.

A key thing to note is that general liability insurance may not cover all types of liability claims. For example, it doesn't typically cover professional errors and omissions, intentional wrongdoing, or certain specific risks, which may require separate insurance policies such as professional liability or cyber insurance. General liability only covers third party claims – that is, a claim made by someone other than you or your employee. So, damage to your own business property is not covered by general liability insurance. You’ll need a business owner’s policy (BOP) or business property coverage for that.

Why you need general liability insurance

General liability insurance is essential for businesses for several reasons. For starters, it can cover the costs if your business is sued for bodily injury, property damage, or personal injury. Legal battles can be costly and time-consuming, and having insurance can help cover legal fees and potential settlements or judgments.

When you consider the cost of a general liability policy and weigh that against a liability claim or lawsuit without proper coverage, it’s easy to see how your business can benefit from having this coverage.

General liability insurance helps protect your assets and business finances by covering the costs associated with covered claims. Without insurance, you would have to pay these expenses out of pocket.

Depending on the line of business you’re in, you may notice that contracts, especially with larger clients or government entities, require businesses to have general liability insurance. Compliance with these requirements is crucial for securing contracts and maintaining business relationships. Consider being passed over because you chose to cut costs and skipped insurance – it’s not worth risking potential business!

Let’s look at it in another light. Having insurance can enhance the credibility and trustworthiness of your business. It reassures clients, partners, and customers that you are financially responsible and capable of addressing potential liabilities. It also reassures them that, if something does go wrong and there is a claim, they won’t be left holding the bag.

Depending on your industry and location, there may be legal requirements for carrying general liability insurance. Failing to comply with these regulations could result in fines or other penalties.

We’re all about encouraging courage and taking the right risks. That said, general liability insurance is an important component of your overall risk management strategy. It allows you to transfer some of the financial risks associated with running a small business to the insurance provider, which can help you focus on your business operations with greater peace of mind.

At the end of the day, accidents and unexpected events can happen at any time, even when you take precautions. General liability insurance provides a safety net for unexpected liabilities that could otherwise jeopardize your business's financial stability. Knowing that you have general liability insurance should leave you with peace of mind. Being able to focus on what you excel at rather than worrying about potential lawsuits and their financial implications is a definite win.

Who needs general liability insurance?

Here's the blanket statement of the century – all small businesses need general liability insurance! However, let’s dig in a bit here.

Small businesses, including sole proprietors, partnerships, LLCs, and S-corps, typically need general liability insurance. It provides protection against common liability risks such as slip-and-fall accidents, property damage, and advertising disputes.

• Construction companies, contractors, electricians, plumbers, and other tradespeople need general liability insurance to cover potential property damage or injuries that can occur on job sites.
• Retail stores and businesses that interact with customers in physical locations may need general liability insurance to protect against customer injuries or property damage claims.
• Service-oriented businesses like hair salons, nail salons, spas, and fitness centers should have general liability insurance to cover any potential mishaps, injuries, or accidents that occur on their premises.
• Restaurants, cafes, and food establishments can benefit from general liability insurance to protect against customer injuries or food-related illnesses.
• Event planners and organizers often need general liability insurance to cover accidents or injuries that may occur during events they coordinate.
• Tech companies may need general liability insurance to protect against claims related to bodily injury or property damage caused by their products or services.
• Nonprofits can benefit from general liability insurance to protect against liability claims that may arise from their activities, events, or operations.
• Artists, photographers, and creative professionals may need general liability insurance to protect against claims related to their work, such as property damage during photo shoots.

While general liability insurance primarily covers bodily injury and property damage, professionals such as consultants, accountants, and architects may need additional coverage like professional liability insurance to protect against claims related to errors or omissions in their services.

The difference between general and professional liability insurance

General liability insurance and professional liability insurance are two distinct types of insurance coverage designed to protect businesses from different types of liability risks. Let’s examine where they differ.

As we’ve described above, general liability insurance primarily covers claims related to bodily injury, property damage, and personal injury that occur during business operations or on business premises. It is often referred to as "slip-and-fall" insurance because it protects against common accidents and incidents that can happen on your property.

In contrast, professional liability insurance is designed to cover claims arising from errors, omissions, negligence, or mistakes in professional services provided by individuals or businesses. It is also known as errors and omissions (E&O) insurance.

Professional liability insurance can cover situations like a client suing a consultant for providing faulty advice or a software company being sued for a software glitch that resulted in financial losses. Professional liability really addresses risks associated with professional judgment and performance.

What are the risks of not having general liability coverage?

Not having general liability insurance can expose your small business to significant risks. The most obvious is the potential for substantial financial losses. If your business is sued for bodily injury, property damage, or personal injury, you may be responsible for paying legal fees, court costs, settlements, or judgments out of pocket. These expenses can be financially crippling and could even lead to bankruptcy for small businesses.

Without general liability insurance, you may have to navigate complex legal proceedings on your own. This can be daunting and stressful, especially if you lack legal expertise. Legal disputes can be time-consuming and emotionally draining.

In addition, a public lawsuit can damage your reputation and erode trust in your business. Even if you ultimately prevail in court, the negative publicity from a lawsuit can harm your brand and deter potential customers and clients.

If you operate a sole proprietorship or a partnership without limited liability protection, not having general liability insurance could put your personal assets, such as your home and savings, at risk in the event of a lawsuit against your business. Even if your business operates as an LLP or LLC, the assets of the business itself may still be at risk without insurance coverage.

Further, some venues or events may require proof of general liability insurance coverage before allowing your business to participate. Not having this coverage could result in missed business opportunities or the inability to participate in certain events or markets.

Not often thought of in terms of general liability, but by not covering your business, your employees may lose trust in your business if they believe that it is inadequately prepared to handle legal and financial challenges. This can negatively affect employee morale and retention. Running a business without general liability insurance can create uncertainty and anxiety because you are constantly exposed to potential liability risks without a safety net.

One last thought: if you need to secure financing or loans for your business, lenders may view the lack of insurance coverage for your small business as a risk factor, potentially affecting your ability to obtain funding.

Not having general liability insurance can have significant and far-reaching consequences, both financially and legally. It is a crucial tool for protecting your business and personal assets from the potential financial devastation of liability claims and lawsuits.

Protect yourself with Hiscox general liability insurance

We’ve covered a great deal in this post; now, let us cover you. General liability insurance provides a safety net that can help you weather unexpected challenges and continue operating your business with confidence. Let us keep your mind at peace and your business safeguarded. Learn more or get a quote today.

Frequently asked questions:

What is an example of general liability policy?

General liability insurance is a type of insurance policy designed to provide protection for small businesses against financial losses that could result from liability claims or lawsuits due to bodily injury, property damage, or personal injury. It can cover situations such as a customer slipping and falling in your store, a client's property being damaged during a service, or a third party alleging that your advertising caused harm to their reputation.

Is general liability an umbrella policy?

No, general liability insurance is not the same as an umbrella policy, although they are related insurance concepts. They serve different purposes and provide different types of coverage.
General liability insurance is a specific type of insurance policy that provides coverage for claims related to bodily injury, property damage, and personal injury that may occur during your business operations. Umbrella insurance, also known as excess liability insurance, is a separate insurance policy that provides an additional layer of liability coverage (i.e., a higher limit) on top of your existing liability insurance policies, such as general liability, auto liability, or homeowners liability. It does not replace your primary liability policies but supplements them.

Are employees covered under general liability insurance?

General liability insurance primarily covers claims related to third-party bodily injury, property damage, or personal injury that occurs as a result of your business operations. It is not designed to provide coverage for injuries or damages suffered by your employees during the course of their work. Instead, employee injuries are typically covered by workers compensation insurance.