What Is General Liability Insurance And How Does It Work?

By Author: Stam Bett
Total Articles: 452
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Small businesses face daily uncertainties and general liability insurance is designed to protect your business from many of them. After all, accidents can always happen, no matter how carefully you plan. Liability insurance goes by many names, including small business liability insurance or commercial general liability insurance but it's basically a protection plan for your company's assets.

What is General Liability Insurance?
This form of insurance protects your assets and pays for most obligations like medical costs if your business is sued after someone is injured, there is property damage or you or an employee cause injury. It covers the cost of legal defense as well as a settlement if you are sued, including compensatory damages, nonmonetary losses and, in some cases, punitive damage.

General liability insurance also covers you against any claims of misleading or false advertising like copyright infringement. It also offers protection against liability as a tenant if you cause any damage to a space you've rented, including fire.

Does Your Business Need Liability Insurance?
Almost 80% ...
... of businesses in the United States are a partnership or sole proprietorship, which puts your business and personal assets at risk in many cases. General business liability insurance offers a form of protection if your business is sued for personal injuries or property damage by covering the legal costs and damages.

Considering the litigious environment we live in today, it's not out of the realm of possibility that you will eventually face a claim of some type. General business liability insurance is a smart investment that doesn't usually cost very much. Depending on your business and coverage requirements, an annual premium may be anywhere from $750 to $2,000, which is a lot less than the money you'd pay trying to fight a case in court.

Some business owners buy general liability insurance as a stand-alone policy although it can also be a part of your Business Owner's Policy, along with property insurance and liability insurance.

How Your Insurance Policy Works
Like most forms of insurance, your policy will have a maximum amount the insurance will pay for a liability claim. For example, lets say your small business liability insurance policy coverage caps at $350,000. If you're sued for $300,000 in medical expenses for an injury due to a workplace hazard plus $75,000 for legal fees, you will be responsible for the additional $25,000.

If your business is high risk and you already have general business liability insurance, you can choose to get excess insurance or umbrella insurance which basically boosts this coverage limit. This may also be necessary sometimes if a client requires your company maintains a certain amount of coverage or umbrella insurance to work.