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Updated: April 24, 2024

General liability insurance explained: Beginner's guide to getting started with this must-have coverage

Published By:

Jon Davis

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Every business owner should consider getting general liability insurance. Why is this type of policy so important? It can protect you from legal liability if a customer gets injured during a visit or if unexpected property damage puts you in a bind.

 

Also known as commercial general liability (CGL), many businesses invest in this coverage because it can help mitigate unwelcome legal expenses, help with surprise property repairs, and provide peace of mind.

Fast facts about general liability insurance

  • Business liability insurance covers bodily injury and property damage to third parties arising from a company’s operations, products, or services
  • A policy pays legal defense costs if the business is sued for a covered claim without tapping into liability limits
  • Standard business liability coverage includes slip-and-fall accidents on the premises and any resulting medical bills or legal judgments
  • Policies do not cover damage to the policyholder’s own property or assets

Despite this, roughly half of the businesses surveyed by NEXT Insurance are operating without a general liability policy in place. This doesn’t mean that businesses are intentionally avoiding coverage. Some may find it challenging to know what to look for, while others may be unaware of all the protections — and peace of mind — a policy provides.

 

In this beginner’s guide, we’ll discuss what this insurance covers, how it works, and what businesses should consider when shopping for a policy.

Get to know general liability insurance

Simply put, general liability insurance protects businesses by providing coverage for claims of bodily injury, property damage, personal injury, advertising injury, and medical payments stemming from the policyholder’s business operations, products, or services.

 

Sometimes referred to as ‘GL’ or public liability insurance, its main purpose is to protect companies from claims that arise during a business’s standard operating hours.

 

Can you choose to forego coverage? Yes, but this can be risky — if something happens outside of your control, you could be responsible for the costs associated with the legal or medical claims that are brought and have to pay them on your own. Also to note is that, in some cases, your clients may require you to have a policy that will cover common general liability claims.

 

Moving on, let’s see what type of protection general liability can provide when a business makes this investment.

Protections that general liability can provide

In a nutshell, a policy can help cover the cost of claims and legal fees that arise if someone is injured while on your business premises. But there’s more to a policy that can make it a no-brainer for businesses just opening the doors or those who have been operating for a while.

 

Bodily injury and property damage liability
One of the most common reasons a company invests in coverage is that it can help with costs that stem from third-party bodily injury or property damage resulting from the insured’s daily business operations or products being used. People sometimes call this “slip-and-fall insurance.” It can include any legal judgments and settlements.

 

Personal and advertising injury liability
Another form of protection is if an insured business faces allegations such as libel, slander, defamation, copyright infringement, or mental anguish caused by advertising.

 

Medical bills
Should a consumer visit your place of business, such as a retail shop or eatery, and experience an accident that requires medical attention, this coverage pays the expenses for a third party injured on the insured’s business premises, regardless of fault.

 

Products liability
Should a product come to market and problems arise, it can protect against injuries or property damage caused by products that the business manufactures, sells, handles, distributes, or rents out.

 

Tenants liability
Do you lease commercial or residential space? This can be especially important because it can protect against allegations of bodily injury or property damage arising from the insured’s use of rented business premises.

 

Let’s get familiar with some of the different types of insurance options that a business considers when taking a closer look at general liability.

Beyond the basics: Liability options businesses take a closer look at

General liability insurance
This basic, and fairly common coverage, protects against third-party bodily injury, property damage, personal injury, and advertising injury claims and is usually the first option a business owner puts at the top of their to-do list. It’s required for leases, vendor contracts, work with municipalities, etc.

 

Commercial umbrella
Some businesses use an umbrella to have additional limits on top of some of their existing liability policies because it can help pay for claims that are more expensive than normal. As the name implies (or what you typically have over your head on a rainy day), an umbrella sits above general liability, auto liability, and employer’s liability coverage.

 

Employment practices liability insurance, or EPLI
Employment practices liability insurance, or EPLI, can help cover your legal defense costs and settlements or judgments if a current or former employee brings litigation for employment-related discrimination, harassment, wrongful termination, or other covered causes. In most cases, policies respond to allegations, even if they are false.

 

Directors and officers insurance
This is designed to protect your directors and officers (D&O) in your organization from personal liability associated with their decisions and actions in managing the company, including any allegations of fraudulent acts. It covers defense costs and judgments or settlements for covered litigation.

 

Commercial auto insurance
Have workers that spend a lot of time behind the wheel? This protects you and your employees when driving a vehicle for business purposes. It covers liability and damage to your owned commercial vehicles. If employees use personal cars for work, non-owned auto liability fills this gap. Consider hired auto coverage too for rental vehicles.

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Are there specific businesses that should take advantage of general liability insurance?

In most cases, any entity that encourages customers to visit, serves the public, or produces goods should take a long look at liability insurance. Though we’re just scratching the surface, you can see some of the most common in the table below:

 

Businesses that invest in general liability insurance
Janitorial and cleaning service providers Real estate agencies or property management groups
Retail and shopping (e.g. clothing stores, gift shops, specialty retail stores) Construction companies and general contractors
Fitness centers, dance studios, and health clubs Hospitality businesses such as motels, hotels or resort properties
Restaurants, bars, cafes, or nightlife establishments Convention centers or event venues
Healthcare providers like doctors’ offices and dentists Transportation services such as taxis or limo services
Personal and consumer service providers (salons, spas, etc.) Manufacturers and industrial production companies

 

Though by no means an exhaustive list, having a policy in place can make good business sense for just about any organization that interacts with or offers a service to consumers.

Coverage you can count on

Interested in learning more? It’s easy to get coverage online with our partner NEXT Insurance. You can start an online quote to get coverage recommendations and a quote in less than 10 minutes.

Are there any claims that liability insurance can’t help with?

It is important to keep in mind that you’ll need different types of insurance coverage to fully safeguard your business, as general liability does not cover every potential claim. Let’s go over some examples.

 

A standard general liability policy will not assist your business with:

  • Commercial auto accidents that are caused by you or your employees while on the road for business purposes. That said, a commercial auto insurance policy can provide coverage for collision damage and third-party liability claims arising from the use of vehicles. Note: If your small business does not own vehicles, you should consider taking a closer look at hired or non-owned auto coverage.
  • Injuries or occupational illnesses that happen when employees are in the workplace or when performing day-to-day duties. In this case, workers’ compensation insurance is used to provide injured staffers with lost wages replacement and medical care without regard to fault. Each state has their own rules when it comes to which employers should carry coverage.
  • Theft, vandalism or damage to your company’s assets and inventory is generally not a consideration. Property insurance is going to be something to research for this type of protection.
  • Acts of alleged negligence, bad advice, or misrepresentation. These types of “non-physical” claims would be covered by a professional liability (errors & omissions) policy and should be considered by any business that offers professional services or advice.

 

The takeaway is that while general liability goes a long way toward protecting your interests, having multiple policies work together makes good business sense and limits exposure.

When you research options for your business and speak with vendors, keep a couple of questions in mind:

  • Are there any other coverage options you would recommend for my company?
  • Are there any important exclusions I should be aware of?

General liability makes good business sense

Though customers and the businesses that serve them never intend (or want) an unfortunate incident to occur, sometimes circumstances are beyond anyone’s control. That’s why business owners can rest easy with a general liability policy. If the unexpected occurs, coverage helps to limit liability, keep costs to a minimum, and better protect the customers who are visiting your place of business. Best of luck as you grow, and let us know how we can help you learn more about a policy.

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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.