General liability insurance is a type of business insurance that provides protection against a variety of liability claims. It is designed to safeguard businesses from financial losses that may arise due to third-party claims for bodily injury, property damage, personal and advertising injury, and other liabilities associated with the business’s operations. Here’s a breakdown of key components to help understand general liability insurance:

What Does General Liability Insurance Cover?

General liability insurance helps cover costly claims that can come up during normal business operations. If you don’t have coverage, you’d have to pay for these general liability insurance costs out of pocket.

A general liability insurance policy can help cover claims that your business caused:

  • Third-party bodily injury: If a customer gets hurt after slipping and falling in your store, they can sue your business. Your insurance policy includes bodily injury liability coverage, so it can help pay for their medical bills.
  • Third-party property damage: If you or your employees work at a client’s house, your business faces a risk of causing property damage. Property damage liability coverage can help pay for repair or replacement costs if your business damages someone else’s belongings.
  • Reputational harm: Someone can sue your business for libel or slander because of something you or your employees said. If this happens, general liability insurance can help cover your legal costs to defend your business.
  • Advertising injury: Your business can get sued for copyright infringement. For example, a photographer can sue you if you use their photo in your ads without permission.

Be aware that general liability insurance doesn’t cover every kind of claim. For example, it doesn’t help your business with claims of:

  • Work-related injuries or illnesses sustained by employees, which workers’ compensation insurance can help cover. This insurance can help pay for their medical expenses and ongoing care costs.
  • Damage to your own business property, which commercial property insurance can help with.
  • Mistakes made in your business’ professional services, which professional liability insurance can help cover.

What Are the Types of Liability Insurance?

In addition to GLI, there are other types of liability insurance that most insurance companies recommend:

  • Commercial umbrella insurance provides additional limits on top of some of your existing liability policies to help pay for expensive claims.
  • Employment practices liability insurance can help cover your legal defense costs and settlements or judgments if a current or former employee sues you for employment-related harassment, discrimination or wrongful termination.
  • Management liability insurance helps protect your business’ directors and officers from costly claims.
  • Commercial auto insurance helps protect you and your employees on the road if you’re driving a car for business.

Why Do You Need General Liability Insurance?

Liability claims aren’t uncommon and can get expensive. In fact, 4 out of 10 small businesses will likely experience a liability claim in the next 10 years.** Slips and falls are the leading cause of emergency room visits.1 The average cost of this kind of claim is $35,000. If a claim leads to a lawsuit, it can increase its average cost to more than $75,000 to defend and settle.** Without general liability insurance, your business would have to pay for these costs out of pocket and it can put you out of business.

How General Liability Insurance Works:

Policy Purchase:

The business purchases a general liability insurance policy from an insurance provider based on its coverage needs and the risks associated with its operations.

Premium Payment:

The business pays a premium to the insurance provider. Premiums are typically based on factors such as the size of the business, industry classification, and coverage limits.

Coverage Activation:

The coverage becomes active, and the business is protected against covered liabilities. The policy outlines the specific coverages, limits, and any exclusions.

Claims Process:

If a covered liability claim arises, the business or the injured party files a claim with the insurance provider. The insurance company assesses the claim and provides financial support for covered expenses.

Legal Defense:

If a lawsuit is filed against the business, the insurance provider covers the costs of legal defense, including hiring attorneys and other legal professionals.

Settlement or Judgment:

If the claim results in a settlement or judgment, the insurance provider covers the costs up to the policy limits. The business may be responsible for any costs beyond those limits.

Considerations:

Policy Limits:

General liability insurance policies have coverage limits, and it’s essential to choose limits that adequately protect the business. Higher coverage limits may result in higher premiums.

Deductibles:

Some policies have deductibles, which represent the amount the business must pay out of pocket before the insurance coverage kicks in. The higher the deductible, the lower the premium.

Exclusions:

Policies may have exclusions, specifying what is not covered. It’s crucial to understand these exclusions and consider additional coverage if needed.

Understanding general liability insurance is essential for businesses to protect themselves from potential financial losses associated with liability claims. It is a foundational element of risk management, providing a safety net against various risks that could impact a business’s operations and finances.

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