A guide to general liability insurance

If you own a business you've likely heard of some of the many types of insurance you may need to help cover you in cases of emergency. Check out this guide to general liability insurance to ensure you are more aware of how insuring your business will help make it more successful!

A Guide to General liability Insurance

What is General Liability Insurance?

General liability insurance protects you from paying out of pocket for third-party bodily injury and third-party property damage. It also covers you if you're accused of libel or slander. It can also be referred to as Commercial General Liability or Business Liability Insurance. All three terms mean the same thing.

General liability insurance focuses on harms that happen to private citizens who interact with your business in some way—maybe they fall down the stairs at one of your buildings and incur bodily injury, or their purse was stolen in your restaurant, or one of your employees bad mouthed a client on the internet, and the client claims to be hurt. Business Liability Insurance would cover all those situations.

Often, clients won't sign a contract with you without having a policy. Your potential client wants to be sure that no matter what happens during their contract with you, you can financially cover issues

What does General Liability Insurance cover?

Bodily Injury

A customer used the restroom at your facility, slipped on the recently washed tile floor--despite the signs your janitor put up-- and now they have a broken tailbone and whiplash.

It would help if you had insurance to cover your customer's medical expenses to settle the matter out of court. If you can't settle out of court, general liability insurance will cover any lawsuit that a customer brings against you. Legal fees can be enormous even if the judge throws out the case or you're found not guilty (because you did put up adequate warnings).

On the other hand, if your employee were the one who took the fall, workers' compensation would cover the incident and not general liability insurance. 

Property Damage

Maybe you're a construction company. Your crew is putting in a new foundation for an extension on someone's home when your backhoe cuts right through a waterline that wasn't on the map of the property. Water is everywhere, and the family has to call emergency plumbers and the city to get it all sorted out. Property damage like this can happen in the blink of an eye. It's an accident, but you'll need to pay for damages to prevent your customer from suing you. Without insurance, you may have to pay 20k or more out of pocket to pay your customer. General liability insurance would help pay for the property damage to the family's home. This way, you can do right by your client without slowing down your business.

Product Liability

Product Liability covers the cost of a lawsuit if your product hurts your customer. Maybe you sell moisturizers, soaps, and lotions. A customer uses your products and has a severe allergic reaction which causes them medical expenses and time off work. Your general liability coverage would help address the lawsuit. 

Reputational Harm

General liability insurance covers a couple of scenarios. Sometimes daycare centers and schools ask parents to sign a waiver giving permission to use their child's pictures on websites, social media accounts, or advertisements. By accident, your school secretary posts a photo to the school's social account with a picture of a kid whose parents didn't give permission. The parents see it, and they sue the school for breach of privacy.

Or let's say one of your managers has a chance to talk about their location's successes on a local tv spot. Live, on-air, the anchor person mentions the rumors that your competitors are being investigated for tax fraud. Your manager agrees and says, "That's why you should work with us, where your money is safe." Your competitor could sue you if it turned out that they're not being investigated for tax fraud since now the community thinks your company substantiated the claim, and your competitor's reputation has taken a hit.

Both of these situations might arise and be considered reputational harm, and your general liability insurance policy can address them.


Advertising Injuries

Advertising injuries usually revolve around copyright infringement, and general liability insurance can help you navigate these sometimes murky waters.

For instance, you and your senior executives are determined to bring in new, younger customers. To accomplish this, you've brought on a new influencer on tik tok to help promote your product. They upload a series of wizarding-themed advertisements right around Halloween, but the influencer's images are too similar to Harry Potter imagery to be considered public domain. Because you're making money off those videos and didn't purchase advertising rights from the author, J.K.Rowling's lawyers sue you for copyright infringement.

Your general liability insurance can help cover the costs of this kind of lawsuit.

Damage to premises rented to you:

You rent a storefront on the boardwalk every summer to take advantage of the summer tourist boom. You are prepared for wind and water damage, but you didn't expect a group of rowdy teens to set off fireworks right in front of your store. The firework catches on some decorations, and before you know it, there's a minor fire and property damage.

Your general liability insurance policy can help pay your landlord for the repairs they have to make so they won't sue you. If you do, general liability insurance can help pay the court costs.

If, on the other hand, you owned the storefront and building that suffered the fire damage, then you would need a different kind of insurance, specifically commercial property insurance, to cover the damages.


So what doesn't general liability insurance cover?

General liability insurance doesn't cover the injuries your employees might experience on the job. You need Worker's Compensation for that. And it doesn't cover mistakes your employees make that hurt your client—You need professional liability insurance for that, sometimes called "Errors and Omissions."

Often companies will help you bundle some essential insurances together for you in a Business Owners Policy, or BOP. They might include Professional liability insurance, general liability insurance, and commercial auto insurance. When you ask about bundling, make sure that you assess where your business's risk lies. A construction company will need more general liability insurance coverage than an accounting firm, and an accounting firm might want to make sure their Errors and Omissions insurance is pretty good.

How often do general liability insurance claims end up in a lawsuit?

Roughly a third of all general liability insurance claims are contested. Sometimes your company may be listed as a responsible party even though you and your employees were nowhere near the incident. It takes time and money to sort those situations out. Still, because your company was part of the chain of liability, you're now involved.

Lawsuits increase the overall cost of the claim to sometimes over 75k. You can't always avoid them, so it is beneficial to have insurance to help you get back on track. Small business owners don't want all their capital to be mired in an expensive lawsuit. General liability insurance can help cover legal defense costs.


How much does it cost?

Like any insurance policy, the cost per month for general liability insurance can vary widely based on several factors. Companies with low-risk factors might only pay a couple hundred a year, whereas a company with a high risk—like a construction company—might pay several thousand dollars a year.

Things like your business's age, location, the number of employees, the building condition, and your company's insurance claim's history can affect how expensive your policy is.


Your general liability insurance cost is also affected by your coverage limits and deductibles.

When we talk about general liability insurance limits, we're talking about your aggregate limit and your per-occurrence limit.

An aggregate limit is a cap that your insurance company will pay for all claims made during that policy period, usually one year. So, if one customer's medical expenses cost the insurance company 450k to settle, and there's another lawsuit claiming defamation that they need to settle for 750k, then it's a good thing your aggregate cap is two million dollars.

The per-occurrence limit is your insurance company's cap for each individual claim. Many policies have a one million per occurrence limit, so they'll pay up to that amount for a single claim. If the customer who was hurt at your site had to undergo major surgery and claims time lost from work, the claim could be much higher than 450k.

The higher your aggregate and per-occurrence limit are, the more your premiums will be. If you have a low deductible, your policy will cost more to account for the money you'll save in the event of an incident.


How much coverage do you need?

If you're a small business, you and your advisor might choose a standard policy of $1 million per occurrence and $2 million aggregate for general liability insurance coverage. But each business has a unique situation, factors, and risks to account for.

When you speak with your advisor, it's important to consider things like:

Your Business

What's the size and location of your business? Where is your business housed? Do you own the property, or are you renting? Do you often use third-party sites to conduct business?

Your Customers

Who are your customers? Where do they routinely go? Are there times they might have access to unsafe areas? Do your customers or clients require general liability insurance for work contracts?

Your Employees

How many employees do you have, and how experienced are they? Are they temporary or full time? Do you or your employees use social media professionally?

The amount of general liability coverage that your business should have will also depend on your company's goals, contract obligations, and the cash you have on hand to pay out of pocket if you need to.

Your advisor can help you understand the risks your business might face. As your business grows and changes, your insurance needs will evolve right alongside. Policy periods of one year let you assess your changing needs routinely so you won't be caught out by a large claim.

Once you have an idea of how much risk you're taking on, you can think about adding extra coverages. These additional coverages are known as endorsements and can extend your coverage limits.

Is general liability insurance required by law?

General liability insurance is not usually required by law. That said, you may be required to have it anyway.

A lease or contract may require general liability coverage, and your client or landlord may specify how much coverage they need you to have. A boutique winery needs general liability insurance if they sell at local food and wine festivals. Event organization companies will require all booths, particularly ones selling alcohol, to have general liability insurance. That way, if a customer is harmed at the winery's booth, or if liquid from a spilled bottle gets into the sound system near the winery's booth, the organizers have a way to ensure the small business can cover the cost.

You can get increased coverage for your business with commercial umbrella insurance to cover you, your employees, and the vehicles you use.

It's always a good idea to understand your state's insurance laws. Do your due diligence to understand the expectations of your clients and the organizations you work with as well. If someone sues your business and you don't have adequate coverage, your finances and your business's future could be at risk.

One piece of your peace of mind

General liability insurance is just one of the types of insurance you need to cover your business. Commercial property insurance, commercial auto insurance, professional liability insurance, and workers' compensation will address other claims. Flood insurance, pollution insurance, cyber threat insurance, and builders risk cover even more possible situations.

With so many types, it can be advantageous to work with your financial advisor to weigh the risks your business takes. Montgomery agents make it a priority to understand each of their client's unique business interests and goals. Let us work with you to find the right insurance to keep your business growing. Get a quote today!

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