How much liability insurance coverage do you need and what does it cover?
Small business owners are offered a smorgasbord of insurance products, but what is general liability coverage and why does it top the list of must-haves? General liability coverage, sometimes called commercial liability, comprehensive general liability or liability insurance coverage for small businesses, is about protecting the company assets if there is a third-party lawsuit filed that relates directly to business operation. It is a policy that organizations need regardless of their industry or operational style.
It is not really a question of if you need to get general liability insurance coverage–most businesses do. The real question is how much do you need and what does it cover. To find the right insurance package, business owners need to learn more about this comprehensive insurance option.
What is Liability Insurance Coverage for Small Business?
In general, when a third party sues the business for property damage or bodily injury caused by the ongoing operation of the company, general liability kicks in. Liability insurance coverage would typically cover the medical expenses for the customer who falls on a wet floor, for example, or to replace a tablet computer that an employee accidentally knocked out of someone’s hand. It could even cover the business as a tenant when there is damage to rental property or if the company marketing is deemed harmful, libel, slanderous or a copyright infringement.
General liability is about protecting the company against claims that result from the business operation, so you don’t lose your assets in a lawsuit. Typically, general liability insurance coverage can extends to:
- Compensatory damages
- Non-monetary losses
- Punitive damages
- Your legal defense costs
What Doesn’t Liability Insurance Coverage Protect?
There are generally items that this type of insurance does not cover, although the exact list of exclusions can vary by policy. For example, general liability insurance coverage usually does not cover employee medical expenses if they are hurt on the job unless it is a subcontractor hurt on the company job site. Other things that typically do not fall under the general liability umbrella include:
- Damage to property owned by the business
- Vehicles or employees injured in a company vehicle
- Any damage or injury that involves a person in the company
The key word to remember when it comes to general liability insurance is third-party. Liability insurance coverage for a small business is typically designed to only cover harm to someone not part of the company or something not owned by the company.
The Basics of Liability Insurance Coverage for Small Businesses
General liability coverage works the same way most insurance policies do–there is a maximum amount the provider will pay for a liability claim. If your company is sued for 500,000 dollars and your liability coverage is capped out at 100,000, the business would have to come up with the rest. Liability insurance coverage can combine with other forms of insurance such as a Business Owner’s Policy to cover the difference, as well.
How Much Liability Insurance Coverage to Get?
The liability insurance coverage necessary for your small business depends on factors like what you do, the perceived risk involved in it, and the scale at which your business operates. Someone who runs a construction company would have much higher risk than a graphic designer, for instance. Check with professional organizations related to your industry to figure out what the average coverage is to get a general idea of what you need.
Where you do business is another factor when calculating your need for liability insurance coverage. Certain states or industries tend to favor the injured party with higher awards.
Your best source of information is the licensed insurance broker. An insurance professional can offer insight on what liability coverage is right for your company based on your industry, risk factor, the court system, and other relevant factors.
General liability insurance coverage creates a solid insurance foundation for small businesses, especially when combined with other critical policies like health, vehicle and business owner.