What Is General Liability Insurance Coverage and Do You Need It?

General liability insurance protects your business from claims related to bodily injuries and property damage resulting from your employees' actions, products, services or business operations. It can also provide coverage for damages to property owned by your landlord for which you might be held responsible.

General liability insurance, otherwise known as business liability insurance, protects your business against claims involving property damage or bodily injury. It can also cover you if you’re accused of reputational harm, advertising injuries and copyright infringement. Without general liability insurance, you risk paying for injuries and damages out of pocket, which could lead to your business’ bankruptcy.

There are many incidents where general liability insurance could come in handy, such as:

These are just a few of the many situations where general liability insurance can help. While it may seem far-fetched now, it’s better to stay protected than risk paying for everything from your business’ wallet.

While general liability insurance covers a wide range of situations, it doesn’t cover everything. For example, you won’t be covered:

• If you get into a commercial auto accident: If you or an employee gets into a car accident while on the job and is at fault, general liability insurance won’t cover injuries or damages — commercial auto insurance does.
• If your employee falls ill or is injured on the job: Employees who get into an accident in the workplace are not covered by general liability insurance. Instead, their medical bills are covered by workers’ compensation.
• If your business property is damaged or stolen: Instead, this would have to be covered by commercial property insurance.
• If there are professional errors or mistakes in services: If your product has a fault or your service was performed incorrectly, you need professional liability insurance.

Understanding what general liability insurance doesn’t cover can help you seek out the additional coverage you need to protect your business.

Having general liability insurance can grant you the peace of mind you need to run your business. Consider the following scenarios:

• Property damage claim: Imagine running a cleaning business and your employee accidentally makes a hole in the wall of your client’s home, amounting to $15,000 in damages. If you have general liability insurance, your policy could pay for the damages or any lawsuit your client may file.
• Bodily injury claim: Say you own a retail store and one of your customers is injured by a falling item. They are hit in the head and incur $100,000 in medical bills, which they expect you to pay for. If you aren’t liquid or don’t have the assets to pay for an exorbitant medical bill, your general liability insurance policy will help cover these costs.
• Reputational harm claim: Imagine owning a bakery and one of your competitors brings you to court for $50,000, claiming you stole one of their recipes and designs. Having general liability insurance can help you pay for the related costs of being in court.

Overall, there are many instances where having general liability insurance can come in handy. This insurance coverage is a great way to safeguard your business against unexpected expenses and ensure your bottom line is not affected.

General liability insurance is not legally required — but it is highly recommended for businesses. Its coverage can prevent you from facing the financial consequences of costly lawsuits, medical bills or property damage.

While all businesses should have some level of general liability insurance, certain industries may benefit from this coverage more than others. For instance, those in the business of providing services, such as construction, plumbing or cleaning, should get general liability insurance to safeguard against potential damages to or on their clients’ properties.

How much general liability coverage you need depends on the size and nature of your business. For small businesses, the most common coverage is around $1 million per occurrence, with a $2 million aggregate limit and $0 deductible.

However, if you work in an industry where the risk of accidents is higher, such as construction or other service-based industries, it’s advisable to get more coverage. On the other hand, industries like consulting or retail may need less coverage.

Keep in mind that getting more or less coverage will affect your premiums. It’s crucial that you evaluate the risks associated with your industry and choose coverage limits based on those risks. Remember that while higher coverage limits may increase general liability insurance costs, they safeguard against more expensive financial damages from accidents or lawsuits.

Choosing not to purchase general liability insurance can lead to serious financial consequences for any business owner. Without it, you could be on the hook to pay for any legal fees, medical bills and property damage costs resulting in a filed claim out of pocket. If you aren’t prepared or don’t have the resources necessary to do this, you may suffer from significant financial losses or even bankruptcy with general liability insurance.

Not only will these expenses drain you financially, but your opportunities may also be at risk. Clients may not want to work with a business that can’t provide proof of general liability coverage.

In addition to general liability insurance, businesses may need other types of liability insurance, such as:

• Professional liability insurance: Also known as errors and omissions (E&O) insurance, it covers claims arising from professional mistakes or negligence. It is essential for professionals like lawyers, doctors and consultants.
• Product liability insurance: This insurance covers claims related to injuries or damages caused by products sold or manufactured by your business. It is crucial for manufacturers, distributors and retailers.
• Cyber liability insurance: This insurance covers claims related to data breaches, cyberattacks and other online risks. 
• Directors and officers (D&O) insurance: D&O insurance protects the personal assets of corporate directors and officers in case of legal claims for alleged wrongful acts in their official capacities.

Without a comprehensive general liability insurance policy, a business faces significant financial risks, such as:

• Out-of-pocket costs: Without general liability insurance, legal fees, medical expenses and compensation for claims must be paid out of pocket.
• Business interruption: Handling claims and lawsuits without insurance can divert time and resources away from regular business operations, leading to a loss of productivity and revenue.\
• Damaged reputation: A business unable to cover claims may face reputational damage, which may result in a loss of trust from customers, clients and partners.