Small business owners must consider which expenses are essential to the well-being of their business, especially when it comes to the different types of insurance available. Small business general liability insurance is not a luxury, according to the U.S. Small Business Administration.

General liability insurance could save your small business from financial ruin in the event of an injury on the business property or damage caused by your company. Not all forms of general liability insurance plans offer the same benefits. By understanding the basics of general liability insurance for the small business, you can make the best choice for your company. Once you’ve purchased a general liability plan, you can consider other important insurance options like choosing a small business health insurance plan through eHealth.

Understanding General Liability Insurance for small businesses

What is Small Business Liability Insurance?

General liability insurance for small businesses covers companies against third-party claims for physical damages. A familiar illustration of general liability insurance is an insurer’s payment of medical bills related to a customer’s fall on the ice in the business’ parking lot.

Business liability insurance offers protection against claims involving your company’s property, service, product, or process of operation. It provides peace of mind to business owners who know they have coverage that will cover costs of a claim that could otherwise lead to financial hardship for the company.

Importance of General Liability Insurance for small businesses

General liability insurance is crucial for small businesses across all industries as it provides essential protection against common risks and liabilities. This type of insurance safeguards businesses from potential lawsuits or claims arising from third-party bodily injury, property damage, or advertising injury. Whether you run a retail store, a consulting firm, or a landscaping business, general liability insurance offers financial protection and peace of mind, allowing you to focus on growing your business without worrying about unforeseen liabilities.

Coverage details and limits

In this section, we’ll delve into the specifics of coverage details and limits, providing comprehensive insights into the scope of protection offered by various insurance policies and the corresponding limits that define their extent.

What does Small Business Liability Insurance cover?

Small business general liability insurance often provides coverage beyond an incident involving a customer’s injury on business property.  It may cover costs associated with civil court actions or awards, such as:

• Legal fees
• Settlements agreed between the plaintiff and defendant/insurer
• Compensatory damages (payment amount necessary to replace what was damaged or lost)
• Non-monetary losses (such as pain and suffering or personal distress)
• Punitive damages (payment amount in excess of compensatory damages to punish the defendant and deter future behavior that caused the injury)

General liability insurance is not limited to coverage for physical injuries sustained by third parties (e.g., visitors) at the company’s site. It often provides coverage for damages to third-party property. For example, in addition to paying medical expenses, general liability coverage may cover the cost to replace a smartphone damaged when a customer slipped, fell, and broke his wrist and smartphone on the business’ icy parking lot. 

For small business owners who lease business space, general liability insurance may cover damages to that rental space caused by fire or weather. It may also cover advertising and copyright infringement claims that your business used another company’s content without permission. 

Although coverage for digital data storage and loss may be covered by some general liability insurers, it is usually added to the coverage at an extra cost.

What’s not covered by Small Business Liability Insurance?

Small business general liability insurance works like an umbrella to cover damage incurred by third parties, such as customers visiting your business. It does not include claims made by employees of your business, however. The employee who falls off a ladder at work and breaks his leg must file a claim with workers’ compensation because the general liability insurance for small businesses does not usually extend protection to people working for the company, including the owner.

While general liability insurance for small businesses may extend to some types of damage to your company’s rented property, it generally will not cover damage done to property owned by your business. General liability insurance does NOT provide coverage for such circumstances as:

• Employment disputes
• Damage to company vehicles
• Medical expenses related to automobile accidents involving you or your employees
• Professional errors & omissions in performing business services
• Cyberattacks that disable key business operating systems, destroy electronic data records, or result in potential identity theft.
• Business interruption caused by natural disaster or government-declared disaster
• Business interruption caused by employee sickness or injury

Employee absenteeism is likely the most common form of business interruption. To protect your small business, you may want to explore small business group health insurance. In addition to providing health insurance coverage for the well-being of yourself, family, and employees, you may receive some tax benefits for your business.

Types of General Liability Insurance coverage

In this section, we’ll explore the various types of coverage available under General Liability Insurance, providing a comprehensive overview of the different protections offered to small businesses against potential risks and liabilities.

Bodily injury coverage

Bodily injury coverage is a fundamental component of General Liability Insurance, providing protection for businesses against financial liabilities arising from injuries sustained by third parties due to the business’s operations or premises. This coverage encompasses various scenarios, including slip-and-fall accidents, injuries caused by defective products, or incidents involving physical altercations on the business premises. For instance, if a customer slips and falls in a retail store, sustaining injuries, bodily injury coverage would typically cover their medical expenses and any legal costs associated with the incident. Adequate coverage limits are essential to ensure that businesses are adequately protected in the event of bodily injury claims, as insufficient coverage could leave them vulnerable to substantial financial losses and potential litigation. Therefore, it’s crucial for businesses to carefully assess their risks and select coverage limits that align with their operational needs and potential liabilities.

Property damage coverage

Property damage coverage is a key aspect of General Liability Insurance, providing protection for businesses against financial liabilities resulting from damage to third-party property caused by the business’s operations or activities. This coverage extends to various scenarios, such as accidental damage to a customer’s vehicle in a parking lot, destruction of a client’s property during service delivery, or vandalism to a neighboring business’s storefront caused by the insured business’s operations. For instance, if a contractor accidentally damages a client’s property while performing renovations, property damage coverage would typically cover the cost of repairs or replacement. It’s imperative for businesses to prioritize protection against property damage liability, as failing to do so could result in significant financial repercussions and damage to the business’s reputation. By maintaining adequate coverage, businesses can mitigate the risks associated with property damage claims and safeguard their financial stability and credibility in the marketplace.

Personal and advertising injury coverage

Personal and advertising injury coverage is a vital component of General Liability Insurance, offering protection for businesses against financial liabilities arising from non-physical injuries caused by the business’s advertising or personal actions. This coverage encompasses a wide range of offenses, including defamation, copyright infringement, false arrest, invasion of privacy, and malicious prosecution. For instance, if a business is sued for defamation due to a negative review published on their website, or if they unintentionally use copyrighted material in their advertising, personal and advertising injury coverage would typically cover legal fees and potential settlements. This coverage is particularly crucial for businesses involved in marketing, advertising, or intellectual property, as it shields them from the substantial financial risks associated with lawsuits arising from these activities. By ensuring adequate coverage, businesses can mitigate the potential impact of personal and advertising injury claims on their financial well-being and reputation.

Common policy exclusions and limitations

Common policy exclusions and limitations in General Liability Insurance are critical factors for businesses to understand when assessing their coverage. Exclusions typically include intentional acts, professional errors, and certain types of property damage not caused by covered perils. Limitations may involve restrictions on coverage amounts for specific incidents or industries. It’s essential for businesses to review these exclusions and limitations carefully to ensure they have adequate coverage for their needs and to mitigate the risk of unexpected gaps in protection. Regularly reviewing policy terms and consulting with insurance professionals can help businesses make informed decisions and safeguard against potential liabilities.

Frequently asked questions about Liability Insurance for small businesses

Is General Liability Insurance right for my business?

Companies of all sizes may benefit from general liability insurance. For small business owners, general liability insurance provides critical protection against the financial impact of lawsuits settled in favor of the plaintiff (injured party), which could potentially drain the company finances and even the business owner’s personal finances.

Small businesses spend about $42 per month on general liability insurance. The cost will vary based on the amount of coverage you purchase, the size of your business, your location, and your industry. It is beneficial for owners of businesses that are open to customers or vendors, those that advertise their business (including on social media), or use third-party locations for business activities. Going without business liability insurance may seem like a way to save money, but it can leave your company vulnerable to legal action that could lead to financial strain or even bankruptcy.

How much General Liability Insurance does a small business need?

The amount of general liability insurance a small business needs depends on several factors, including budget constraints, the relative risk of claims for physical damages, and other insurance needs of the business. A small business with a relatively high risk for injury claims, such as a gym, or a business in a region known for snow or ice, might opt for more coverage. A company with no public physical space typically carries a lower risk for injury claims, so the owner could reasonably opt for a modest level of coverage.

Small business general liability insurance is an important type of coverage to have for your company, but it’s just one of a number of insurance options your company may need. As a prudent business owner, you know you must budget for the cost of insurance to ensure the financial well-being of your company. You should choose your plans carefully to ensure the coverage you choose matches your specific business needs. 

You don’t need to undertake the task of selecting your small business insurance alone. Licensed insurance brokers at eHealth are available to assist you at no charge to you. We also offer a comprehensive small business resource to employers free of charge. You are under no obligation to purchase insurance. Our goal at eHealth is to help you find the right insurance to meet your needs.

What are the factors affecting General Liability Insurance costs?

The cost of General Liability Insurance is influenced by various factors that reflect the unique risks and characteristics of each business. Industry-specific risks play a significant role, as businesses operating in high-liability sectors may face higher premiums due to increased exposure to potential claims. Additionally, business size and revenue are crucial considerations, with larger businesses often paying higher premiums to reflect their greater financial capacity and potential liability. Claims history and risk profile also impact costs, as businesses with a history of frequent or severe claims may face higher premiums. Furthermore, location and operating environment can affect insurance costs, with businesses located in areas prone to natural disasters or with higher crime rates typically facing increased premiums to account for elevated risks. By understanding these factors, businesses can better assess their insurance needs and work to mitigate risks to potentially lower their insurance costs.