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General Liability Insurance for Small Businesses Explained

Author: Kimberlee | January 23, 2025

Edited by: Kimberlee and Reviewed: Kimberlee

As a small business owner, you need to mitigate the risk associated with running your company. One way to do that is to buy insurance that would protect you from the financial ramifications associated with certain incidents. General liability insurance is one of the key policies to consider, and this article dives deep into what it is and why small businesses need it. 

What is General Liability Insurance?

General liability insurance is an insurance policy that small business owners get to protect them from third-party losses resulting from accidents that happen as a result of business operations. It provides coverage for claims where someone gets hurt or has personal property damaged. The insurance pays the medical expenses, replacement of property, legal defense, and any settlement or judgments made against the company for the claim. Most often, these are seen as slip-and-fall accidents. 

Importance for Small Businesses

Without insurance coverage, a small business owner is responsible for paying for losses and claims on their own. These claims can be valued significantly, often for tens of thousands of dollars or more. Having to pay for claims on their own, small business owners might experience financial difficulties because of the claim. Insurance mitigates all of this. 

Key Components of General Liability Insurance

Let’s look at the key components of general liability insurance. Note that general liability insurance covers third-party losses, not employee losses. 

Bodily Injury and Property Damage

The main component of general liability insurance is that it provides financial support when third-party consumers are injured, or property damage occurs at the company’s expense. It pays for the medical expenses and care needed or repairs or replaces the damaged property. 

Personal and Advertising Injury

A lesser-used component of general liability insurance is personal and advertising injury. This provides protection if an employee creates a situation of libel or slander. Similarly, an employee may do something that leads to copyright infringement, for which the small business is responsible. General liability insurance covers that.  

Defense Costs

Oftentimes, third parties get legal representation when there is an accident. This is natural in a litigious environment. When this happens, the small business and its employees may need legal representation to defend themselves from bigger liability. The general liability insurance provides defense costs for the small business and its employees. This can save a lot of money and is not considered part of the policy cap. 

Why Small Businesses Need General Liability Insurance

Let’s look at why small businesses need general liability insurance. 

Risk Management

Small businesses need general liability insurance as a risk management tool. The policy exists to mitigate the costs associated with losses. This ensures that the small businesses can endure the loss financially and continue operating as usual. 

Legal Requirements and Compliance

A small business may have regulatory requirements to get a general liability insurance policy. It may be required for some licensing in some states. Additionally, a general liability insurance policy may be required by contractual agreements such as leases or subcontractor terms. Read the fine print to understand the requirements and how much coverage you actually need. 

Protecting Business Assets

When a claim arises, a small business’s assets are at risk if it does not have insurance. With insurance, small businesses have the resources to pay claims without dipping into company resources, ultimately protecting the business’s assets.

Choosing the Right Coverage

Here are some things to consider when choosing the right coverage. 

Assessing Business Needs

Before you select coverage, assess your business’s needs. Does your company have a lot of foot traffic or advertise frequently? These factors can increase your exposure and increase the amount of coverage needed to protect your small business properly. 

Evaluating Insurance Providers

Take a look at what the insurance providers offer. Some may pair general liability with commercial property coverage in a business owners policy that is convenient and saves you money in the long run. This may be a good solution to get the coverage you need. 

Policy Limits and Deductibles

Set the policy limits and deductibles based on what your company can afford. 

Understanding Coverage Limits

The coverage limit is the maximum amount that the policy will pay for a claim. There are per occurrence limits and aggregate limits that cap what the policy will pay for a claim within the term of the policy. 

Choosing Appropriate Deductibles

Deductibles are your portion of the claim that you are financially responsible for. The higher your deductible, the lower your premium will be because you are assuming more financial risk in a claim. 

Factors Affecting Premiums

There are many factors that affect the premium you will pay. Some of those factors are:

  • Industry
  • Business size
  • Location and business operations
  • Claims history

How to Purchase General Liability Insurance

Getting general liability insurance is easy and can be done online if you like. 

Working with Insurance Brokers

An insurance broker will help you compare quotes and shop the policy around for you. They are also crucial in assessing the risk and helping you determine how much insurance you really need. 

Online Quotes and Comparisons

It takes just a few minutes and a little information to get an online quote and compare carriers. Shop quotes with the same coverage to ensure you are comparing apples to apples. 

Reviewing and Updating Policies

Once you have a policy in place, review it annually or as your business changes to ensure you have the right coverage as your business grows. The bigger your business, the more liability you have and the more coverage you need. 

Frequently Asked Questions

What Isn’t Covered by General Liability Insurance?

General liability insurance will not cover third-party losses resulting from professional errors and omissions. Nor will it cover injuries to employees. For those types of losses, you will need a professional liability policy or workers’ compensation policy, respectively. 

How Does General Liability Differ from Professional Liability?

Professional liability differs from general liability in the type of third-party loss there is. When the loss results from business operations, general liability kicks in. When the loss occurs because of a professional mistake, professional liability kicks in. 

Can I Bundle Other Insurance Policies?

Bundling can help you save money. Some insurance companies allow you to bundle general liability with other policies. In fact, most insurers have a business owners policy (BOP) that bundles general liability with commercial property and sometimes business interruption insurance.

Find Comprehensive General Liability Insurance Coverage for Your Small Business

Policy Ape is here to help you buy general liability insurance for a competitive price with major carriers. Shop for coverage today. 

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