Author: Kimberlee | September 17, 2024
Edited by: Kimberlee and Reviewed: Kimberlee
Liability insurance protects you against third-party claims of loss or injury. The insurance pays any claim amount owed and also affords a legal defense if you need one. Before you buy liability insurance, learn the difference between general liability insurance vs. professional liability insurance. Here’s how to choose the right type of insurance for your company.
General liability insurance is a policy most small business owners will get either independently or through a business owners’ policy. The general liability policy pays for claims when someone is injured, or their property is damaged through the course of general business activities. For example, someone may slip and fall on the floor and get hurt, making a claim against your general liability policy. This type of insurance has three basic coverag inclusions.
Let’s take a closer look at the three types of general liability inclusions.
Customers or the general public may get hurt on your property. These injuries are your responsibility. General liability insurance ensures that you won’t have to dig into your business funds to pay for these injuries.
Just as someone can get hurt on your property, there may be property damage from general business operations, leading to consumer loss. For example, a landscaper may accidentally have a tree branch fall on a car on the street when pruning it. A general liability insurance policy would cover the damage.
This happens when there is reputational harm done to another person or business. For example, your Facebook ad might use language that says a key competitor is bad without a reasonable example of the claim. This harms the reputation of the competitor who sues you for defamation. The general liability insurance policy would cover this claim for your business.
Professional liability insurance protects a service provider from claims where the provider didn’t do his job properly or professionally. It pays for the settlement costs as well as the legal defense of the business. It is also known as errors and omissions (E&O) insurance.
There are three common inclusions in a professional liability policy.
If you make an error or leave a customer with an omission that is important to the final delivered services you are contracted to do, you could be sued. For example, if a general contractor frames a house but has an error in the building of the stairs leading to structural insecurity, the professional liability policy would compensate the homeowner for the damages and allow them to rebuild the stairs.
Misrepresentation happens when you don’t give the client the correct information to make a decision. For example, a tutor might guarantee that his students get into an Ivy League school as a result of his tutoring. Since there is no direct correlation between his tutoring and an Ivy League school, misrepresentation has occurred and is subject to a claim on the business and covered by a professional liability policy.
Negligence happens when you don’t offer comprehensive care when doing your service job. This happens a lot in medical malpractice lawsuits. For example, a doctor may perform surgery on the wrong knee. This is a case of negligence and is covered by a malpractice policy, which is another name for a medical practice’s professional liability insurance.
Some key differences exist between a general liability policy and a professional liability insurance policy.
The scope of coverage is the key difference between the general liability insurance and the professional liability insurance policies. The general liability policy covers third-party claims of loss resulting from general business practices. These are accidents that are not related to the actual work you do for your customers. A professional liability policy covers losses directly related to the work you do for your clients.
The risks covered in a general liability policy include the layout of the business and its general operations. People are at risk of falling, bumping their heads, or having inventory fall on them when trying to get something off of a shelf. Professional liability policies protect you from what the business does professionally. Risks include not providing the correct professional information, breach of contract, or a negligent act.
There are similarities between the two types of policies that you should consider.
Both policies cover the legal fees involved in addressing and fighting a claim in court if necessary. The insurance company will usually assign a legal team to the defense and pay for it as part of the claim. The legal fees don’t count toward the coverage cap, often up to $1 million per event.
Having both types of policies will give a business owner peace of mind, knowing he is protected for both types of claims. This helps to reduce gaps in coverage and ensure that the business is protected in a variety of ways.
Some clients won’t do business with a company that isn’t insured. They want to deal with professionals who offer protection for accidents. This is what the insurance does. Additionally, some state licensing boards or counties require policies to retain professional licenses or have business permits issued.
There are benefits to having both types of insurance policies.
By having both a general liability and professional liability insurance policy, a business can ensure that it has comprehensive coverage. It becomes protected from general claims and also has professional protection against errors and omissions.
As mentioned above, clients like knowing they are working with true professionals. Having both types of policies shows that you realize that accidents happen, and you want to make sure there is funding to protect both your business and the consumer.
Getting both types of policies is the first step in creating a risk management strategy. You may expand your strategy to include safety measures, use of contracts, and training employees on professional conduct.
A business can have both a general liability and a professional liability policy. Each policy covers different types of losses, ensuring the company has protection through various accidental circumstances.
Not having either type of policy means that the business doesn’t have any protection against a lawsuit. This means that if a claim arises, the business will be responsible for any legal costs on its own and will have to pay the settlement or judgment out of pocket. This could financially cripply a business.
Your annual renewal is a good time to review your liability coverage to ensure that you have enough and the right type of protection. Work with your agent about changes in the company profile, such as the number of employees and total revenue. These are critical factors in understanding coverage.
A business owner will want to talk to an insurance agent about obtaining the right business insurance for his company. Most start with at least a general liability policy, while others will also include a professional liability policy for added protection.
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