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 errors or business practices. 

Who needs general liability insurance?

Business owners who sell products or provide services to customers need general liability insurance. “Every business should consider having a general liability insurance policy, as it’s often a prerequisite for establishing important business relationships,” advised Chris Peterie of Tower Street Insurance. 

A significant number of small businesses will face property or general liability claims due to 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, such as contractors, electricians and painters
• Small businesses, such as beauty shops and photography studios
• Large companies, such as marketing firms and information technology 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 require a business to maintain general liability insurance legally. 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. 

Dennis Shirshikov, adjunct professor of economics at City College of New York, noted that only a few businesses can get away without getting general liability insurance. “Some single owners with no public-facing business may be able to avoid general liability, although this is becoming less popular and [is] not recommended,” Shirshikov explained. 

What does general liability insurance cover?

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

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

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 related to business lawsuits
• 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)

What are reputational harm and advertising injury?

Reputational harm and advertising injury aren’t as self-explanatory as other claim types, such as property damage and bodily injury. Here’s a breakdown of these potential risks:

Reputational harm

Your business can be sued by a competitor if you or an employee makes false or unfounded claims about them. “Reputational injury refers to charges of slander, libel or defamation that hurt a person’s or organization’s reputation,” Shirshikov explained. 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 reputational harm claims:

• Libel, such as defaming someone in print, on the radio, on TV or over the internet
• Slander, such as defaming someone through oral statements or gestures
• Defamation of a competitor’s products or services
• Violation of a competitor’s privacy

Advertising injury

A third party can sue your business for perceived or actual offenses that arise in advertising your company, products or services. General liability insurance covers 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

How much does general liability insurance cost?

On average, general liability insurance costs $1,019 annually, according to The Hartford. However, the exact costs vary depending on the following factors:

• Location: Insurance providers price general liability insurance based on business location
• Type of business: Some types of businesses, such as construction companies, face higher risks and are more likely to incur lawsuits than other industries. That results in higher general liability insurance premiums.
• Business size and number of employees and clients: Businesses with more employees and clients typically require higher coverage limits than single-person businesses.
• Industry experience: Because they have built trust with their insurance provider and clients, more experienced business owners may pay less for insurance than newer businesses.
• Claim history: A business with a history of filing insurance 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.

What are 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: 

• Aggregate limit: The aggregate limit is the maximum amount your insurance company will pay for all claims combined within a policy year.
• Per-occurrence limit: A per-occurrence limit is the maximum amount your insurer will pay for each individual claim during the policy period. 

How do you choose general liability insurance?

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

1. Assess your business risks. Start by outlining any risks associated with your business. Check your industry’s legal requirements to ensure compliance. 
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 insurance 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 summarizes 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 on other individuals or companies to be listed on the certificate
• Copy of the insurance requirements or contract

Kimberlee Leonard contributed to this article.