General Liability vs. Professional Liability: Which Do You Need?

When choosing between general liability and professional liability insurance, it's important to understand their unique purposes. Both types of coverage protect against risks but cater to different aspects of business operations. General liability covers physical risks like property damage or bodily injury, whereas professional liability focuses on errors or omissions in professional services.

Deciding between them or determining if both are necessary requires understanding your business's specific needs and risks, including the nature of your services, your industry and potential legal exposures.

Comparing general liability and professional liability insurance helps you identify which coverage best suits your needs. Understanding the similarities and differences between these policies ensures comprehensive coverage for various business operations and liabilities.

General and professional liability insurance both provide essential coverage to protect businesses from financial loss. Here's how the two are similar:

• Both types of small business insurance address third-party claims and provide coverage for legal defense costs, settlements and judgments.
• They aim to protect policyholders from potential financial burdens associated with legal disputes, safeguarding assets, reputation and financial stability.
• Businesses and professionals typically obtain both types of insurance to mitigate risks and provide financial protection. The cost of both insurances is based on industry type, business size, risk exposure, claims history, coverage limits and deductible amounts.
• They provide peace of mind to business owners and professionals by ensuring that unexpected legal issues do not disrupt operations.

General liability insurance and professional liability insurance serve unique purposes and address different types of risks. We highlight these differences below:

• General liability insurance applies to many businesses and industries, whereas professional liability insurance is tailored to professionals who provide specialized services or advice.
• General liability insurance primarily addresses claims related to bodily injury, property damage and personal injury arising from everyday business operations. In contrast, professional liability insurance specifically covers claims arising from professional services, such as errors, omissions or negligence in performing specialized duties or providing professional advice.
• The scope of coverage differs significantly. General liability insurance encompasses a broad range of risks associated with business operations, such as accidents, premises liability, product liability and advertising injury claims. On the other hand, professional liability insurance focuses on the insured professional's actions and their impact on clients.
• Claims under professional liability insurance typically involve more complex legal and technical issues related to professional standards and practices. In contrast, general liability claims involving physical damage or injuries are often more straightforward.

General liability insurance is a foundational insurance policy that provides coverage for common risks, including:

• Bodily injuries on your premises or resulting from your operations
• Property damage caused by your operations or occurring on your premises
• Personal and advertising injuries, such as slander, libel or copyright infringement

Let's consider some scenarios:

• A customer slips on a wet floor at a café and breaks an arm.
• A contractor accidentally damages a client's property while installing a new HVAC system.
• An advertising campaign inadvertently uses copyrighted images, leading to a lawsuit.

Liability insurance is crucial for businesses with physical premises or those interacting directly with customers, such as retailers, restaurants or contractors.

Advantages include a wide coverage range and meeting contractual requirements, such as leases or client agreements. However, a key limitation is that it doesn't cover professional mistakes or negligence in service delivery.

General liability insurance costs an average of $28 per month for sole proprietors and $67 per month for LLCs. The factors that may affect the cost of general liability insurance include:

• Industry and risk level: Different industries face varying levels of risk. For example, construction companies may have higher premiums due to the physical risks involved, while a retail store might have lower premiums.
• Business size and revenue: Larger businesses or those with higher revenue typically pay more for general liability insurance because they present a greater risk and potential for more significant claims.
• Type of services offered: Businesses providing services that involve direct customer interaction or handling of client property may incur higher premiums due to the increased risk of claims.
• Business location: Areas with higher crime rates or more stringent regulations may increase premiums.
• Coverage limits and deductibles: Higher coverage limits provide more protection but also come with higher premiums. Similarly, a lower deductible can increase premiums, while a higher deductible may reduce them.

Professional liability insurance, or errors and omissions (E&O) insurance, covers mistakes or negligence in professional services:

• Errors and omissions in services provided
• Failure to deliver promised services
• Misrepresentation or violation of good faith and fair dealing

For instance:

• A consulting firm's flawed advice leads to a client's financial loss.
• An architect's error in blueprints causes a construction delay.
• A real estate agent mistakenly misrepresents property specifications.

Professional liability insurance is important for businesses or professionals providing advice or services, like consultants, architects or real estate agents. Its benefits include protection against claims of poor or negligent service. But, it does not cover physical injuries or property damage.

The costs of professional liability insurance significantly vary depending on your business type. Sole proprietors can expect to pay around $80 per month, while LLCs with 20 employees typically spend $706 on average. Several factors can affect the cost, including:

• Type of profession and services offered: Different professions carry different levels of risk. For example, medical professionals and lawyers may face higher premiums due to the significant impact of their work, whereas consultants might have lower premiums.
• Specialization and expertise: Professionals with specialized knowledge or those who offer niche services might face different premium rates based on the specific risks associated with their specialization.
• Professional experience and qualifications: More experienced and highly qualified professionals might receive lower premiums due to their perceived lower risk of making errors or omissions.
• Business size and revenue: Larger businesses or those with higher revenue often pay more for professional liability insurance due to the increased potential for claims.
• Location and jurisdiction: Areas with higher litigation rates or stricter regulations may result in higher premiums.
• Coverage limits and deductibles: Higher coverage limits provide more extensive protection but also come with higher premiums. Opting for lower deductibles can increase the premium, while higher deductibles can reduce it.

We explore a few examples below to illustrate why you may want general or professional liability insurance for your business.

Deciding whether your business requires both general and professional liability insurance necessitates careful consideration of your specific business risks and operations. Here are some criteria to help guide your decision:

• Nature of your services: If your business provides both physical products or services and professional advice or services, you may need both insurance types. This dual coverage protects against bodily harm and property damage (general liability) as well as claims related to your professional advice or service delivery (professional liability).
• Customer interaction: General liability insurance is crucial if your business regularly interacts with customers, either at your location or theirs. Professional liability insurance becomes equally important if you also provide professional advice or services to these customers.
• Regulatory or contractual requirements: Sometimes, both types of insurance may be required by laws or contractual agreements specific to your industry.

Now, let's consider a few business types that might need both insurances and why:

• IT companies: These firms often provide hardware installation services and software consulting. The physical aspect of hardware installation could lead to general liability claims for property damage or bodily injury, while flawed software recommendations or services could lead to professional liability claims.
• Contractors with consultancy services: These businesses face physical risks through their on-site work and professional risks through the advisory portion of their services. For instance, a construction error could result in bodily injury (general liability), while flawed construction plans could lead to a failed project (professional liability).
• Fitness studios offering personal training: In this case, an accident involving gym equipment could lead to general liability claims, while incorrect professional advice or a flawed personal training plan could lead to professional liability claims.
• Health care clinics: These establishments often face both physical risks (like a patient slipping and falling) and professional risks (like claims of incorrect diagnosis or treatment).

By carefully assessing the nature of your services, your level of customer interaction and any specific legal or contractual requirements, you can make an informed decision about whether your business might benefit from carrying both general and professional liability insurance.