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How General Liability Insurance Varies Across States: What Business Owners Need to Know

Author: Kimberlee | September 17, 2024

Edited by: Kimberlee and Reviewed: Kimberlee

Introduction to General Liability Insurance

General liability insurance is an insurance policy that protects you from third-party losses when your organization’s general business operations are responsible for the financial loss. Things like slip and fall accidents can be quite costly to a business if they don’t have insurance. That said, while general liability insurance is a good idea, it isn’t required for all businesses in all states. Here’s what you need to know about general liability insurance and how its requirements vary. 

State-Specific Legal Requirements for General Liability Insurance 

Overview

Insurance is not run by a national organization. Each state’s department of insurance runs it. This means that the requirements of one state may vary compared to the requirements of another when it comes to general liability insurance. 

Examples of State Policies

Here are some examples of state policies when it comes to general liability insurance. 

Is General Liability Insurance Required in California

California does not require a business to have a general liability insurance policy. While it is not a requirement, it is highly suggested that businesses get a policy for at least $1 million in coverage. This is because California does not limit the amount a settlement of injury or loss can be. Because of this, the small business will want to protect its assets from accident claims. 

Florida General Liability Insurance Requirements

As a state, Florida does not have any requirements for general liability insurance. However, businesses should check with local cities and counties where there may be requirements to do business. A small business owner should check with the local government office, such as the city or county clerk, to see the requirements. You may find that the general liability insurance requirement is limited to specific types of businesses in certain locales. Experts still recommend getting coverage to protect against accident claims. 

Georgia General Liability Insurance Requirements

There are no state laws requiring general liability insurance for claims in Georgia. Like Florida, there may be some city regulations that you must follow, so be sure to check with the city clerk to determine if your small business must have general liability insurance. Just because it isn’t required doesn’t mean that you shouldn’t get coverage. Even a minor accident can result in tens of thousands of dollars in a claim. This is money you’d have to pay out of pocket if you don’t have a general liability policy to cover the claim. 

Factors Influencing Insurance Requirements in Your State

Most state requirements for small business insurance are regulated at the city and county level. As a whole, states do not require general liability insurance the way that they require workers’ compensation insurance and commercial auto insurance. If it is required, it may be contingent on specific factors. 

Type of Business

It is common practice for a company to have general liability insurance when they enter into a contract with a consumer or another company. It is common for contractors, landscapers, and engineers to be required to get a policy when working on multi-party projects. 

Municipal Laws

Municipal laws play a significant role in determining whether or not your small business requires general liability insurance. This ensures to the broad public that the company has the resources to pay for most claims and won’t declare bankruptcy or financial insolvency if a large claim arises. Check with your local municipality or city clerk to see what coverage requirements are in the area. 

Number of Employees

Larger companies are prone to having more claims. This is the nature of the law of averages that small business organizations face. This means that larger organizations should have a general liability insurance policy. That being said, even if they should have it, it isn’t going to be required unless the local government requires it. Some larger companies choose to self-insure instead – taking the risk on themselves.  

Level of Risk Involved

Companies with a higher risk profile are at greater risk of a claim and should have a general liability insurance policy. The risk profile may be what municipalities and local governments consider when requiring a policy to be in place. So, while it may not be required at the state level, it may be required down the government chain. 

Why Costs and Premiums of General Liability Insurance Vary By State

Premiums of general liability insurance will vary from state to state. Here are some factors to consider. 

State Regulations

Some states have more regulations imposed on businesses than others. When considering the cost of general liability insurance, take into consideration the state and local government regulations requiring a policy. 

Litigation Environment

Highly litigious states will have a higher cost of insurance. This is because more companies get sued for claims, driving the cost of insurance up. When more people sue, the insurance company has to spend more on settlements and court costs, including legal fees. This makes it more expensive to insure companies in the area.  

Dominant Industries

Some industries are more likely to have claims than others. For example, a water park is more likely to have slip-and-fall accidents than an accountant’s office. Both have risks, but one is higher and thus more likely to experience a claims loss. This will affect the cost of insurance. Higher-risk industries will be more expensive to insure than less-risky ones.  

Geographical Factors

Where your business is located plays a role in its risk category. Some places are more likely to experience losses than others. This may include those closer to flood zones or other natural hazards. These companies will experience higher costs because of the higher risk of claims. Small businesses should consider their location to help minimize the cost of insurance.  

State Economy and Costs

Inflation and interest rates can have an impact on the cost of insurance. If your state is experiencing economic difficulties, you may see this translate into higher insurance costs. The insurance commissioner will often regulate how much insurance costs can go up in the state, working to mitigate some of the increases.  

Claims History and Risk Pool

A small business with a history of claims will pay more for general liability insurance than a business that has no claims. The reason is that a company with one claim is more likely to experience a second and third loss. Establish safety protocols in your business to reduce the chances of claims and keep your insurance costs down. 

Determining the Regulations in Your State

You can determine the insurance regulations in your state by contacting your insurance commissioner’s office and talking to local municipal offices. The requirements may vary by location and business type, so be sure to give them the right information to help you determine if you are required to get a general liability policy. 

Conclusion

While no state requires a business to obtain general liability insurance, many municipalities do. These are local laws that are designed to protect the broad public from companies unable to pay for claims. You can best determine what your requirement is by talking to your insurance professional or getting information from the municipality itself. 

Frequently Asked Questions (FAQs)

Is general liability insurance required by law in the USA?

General liability insurance is not required by law throughout the USA at a state level. However, many local governments do require it for licensing purposes to protect consumers from business claims where companies can’t afford to pay. 

Are there specific limits or minimums required for general liability insurance?

While there are no state regulations setting minimum limits, most companies should get at least $1 million in coverage. Those with a very low-risk profile might get away with only having $100,000 in coverage and should discuss their risks with their insurance professional.

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