What is general liability insurance?
General liability insurance, also known as Commercial General Liability Insurance (CGI) or Liability Insurance, is a broad insurance policy that protects your small business from various risks, such as if someone sues your business for causing property damage or bodily injury.
This type of insurance is one of the most cost-efficient ways to keep your business safe from very high costs that can arise from things like lawsuits, accidents, or any other action taken towards your business. You can get this insurance alone or bundle it with other ones in a BOP (Business Owner’s Policy).
Is general liability insurance required by law?
There is no law that explicitly requires a business to have general liability insurance. However, most small business owners do end up getting this insurance later on as they become increasingly aware of situations when it can be required, such as by a client, a licensing body, or a lessor.
Although general liability insurance isn’t required by law as such, there are other types of commercial insurance that are. For instance, most states require businesses that have employees to have workers’ compensation insurance, which covers medical costs and any lost wages for work-related injuries and illnesses. Another insurance that states have made compulsory is commercial auto insurance, and how much of this coverage a business needs to get varies state by state.
When might my small business need general liability insurance?
Most business owners end up getting general liability insurance shortly after they form their new business. Here are a few situations that drive them to do so:
- Applying for a professional license: professionals such as real estate agents, dentists and accountants all need a license to be able to practice their profession in the United States. Sometimes requirements for this license include general liability insurance so it’s a good idea to get it just in case
- Signing an office lease: many professionals who rent offices or workspaces, such as architects, might need to have general liability insurance to get a lease from the lessor. This insurance helps to protect people involved in any physical damage.
- Signing contracts with larger companies: companies that could hire on of you or your employees – be it a general contractor, engineer or landscaper, to help them complete a larger product might need you to obtain this policy, so that they know you’ll be able to complete the work even if someone makes a claim against your business, because you’re at less of a risk of going out of business.
Why should a business get general liability insurance?
As suggested in the name, this business is great for ‘general’ protection, against many things. It’s one of the most important coverages you can buy for your business, protecting various elements of it. A general liability insurance policy can help to protect your business from:
- Third-party bodily injury: if you are sued by someone because they were injured on your property
- Third-party property damage: if you or an employee damaged or destroyed someone else’s property
- Reputational harm: if someone sues your business for libel or slander, impacting their business
- Advertising injury: if another business claims that your advertising is hurting their business in some way
When you get hit with any one of these claims, general liability insurance can help you by covering some or all (depending on the insurance policy) of the costs for legal help, witness fees, evidence costs and judgements or settlements.
Preventing your business from going bankrupt
A business owner may think that since they are not required by law to have this insurance, and they don’t need to get a license and are not required a license to sign a lease, that they do not need one at all. However, the business owner may find that if he has to deal with a case the insurance would have worked out cheaper for him.
Most businesses don’t have the money to face a large liability claim against them. The Hartford, a financial service company, found that a huge 40% of small businesses will experience a liability claim in the next 10 years alone. Further data also found that customer ‘slip and fall’ accidents made for 10% of claims, accruing in a cost of $20000 for each case, and the average cost of all customer injury claims is $35000, with the most costly claim being reputational harm – causing a business to cough up a massive $50000.
Without any insurance, you might have to end up covering the cost for this, as well as paying for lawyers to handle a case for you too. Costs may be so high you might have to end up giving over your personal assets, and even going bankrupt. Having insurance will help you and support you through a claim like this – most insurance companies will be just a phone call away.
Can I not just hire a lawyer myself?
Lots of small business onwers that have a limited liability company (LLC) or a corporation might think that they do not need business insurance, because they have limited liability, meaning their personal assets aren’t at stake – so even if their business goes under, they won’t.
However, having an LLC will typically not protect you if someone makes a claim against your business for any of these reasons:
- You did something illegal, whether knowingly or unknowingly
- You mixed your personal expenses with your business expenses, losing that limited liability
- You acted irresponsibly or negligently
As an business without this insurance you are required to respond to these complaints and need to hire your own lawyer team to deal with this. This can end up being quite time consuming – time you could be spending on running your business. If you get general liability insurane, though, your insurance company will be a huge help during this process – helping you to handle a lot of the legal effort and the fees, and can’t say no no matter what you’ve done, because of their policy, so you can feel comforted you have a safety net.
TRUiC has a great deal of information on liability insurance. Read more on their website.