Updated January 7, 2020

As a small business owner, you have a responsibility to protect the people that make your business great – your employees. If an accident happens on the job, they may rely on you to be there for them, so they can heal. That help often comes in two forms: general liability insurance and worker’s compensation insurance. What is the difference between these two types of protection and what can you expect from them?

What is General Liability Insurance?

General liability insurance protects you and your business from covered high-cost liabilities.
For example, you might file a general liability claim if:

• A customer or bystander is hurt on your business property
• You or an employee damage another person’s property
• Your business practice injures someone in some way such as slander or through false advertising

Small businesses use general liability insurance to manage general risks associated with doing business. It may protect small businesses from lawsuits for patent infringement and copyright violations, for instance.
Expect general liability to typically cover costs such as:

• Legal fees
• Property damage costs
• Punitive damages
• Wage compensation for non-employees
• Medical bills for non-employees

For most companies, purchasing general liability insurance is just good business, but it may be mandated in some states for specific industries such as construction. The exact types of liability covered by each plan can vary.  A licensed insurance broker for general liability insurance can tell you if your state requires your small business to carry this type of insurance and can help you understand the coverage in each plan.

What is Worker’s Compensation Insurance?

Unlike general liability insurance, worker’s compensation insurance is a state-mandated program that focuses on the needs of the employees when they get injured on the job. For example, if an employee slips and falls, you would file a worker’s compensation claim to pay for medical expenses and lost wages.

What is the Difference Between General Liability and Worker’s Comp?

The key difference is who can benefit from an insurance claim:

• General liability= anyone who is harmed by a covered event, whether employed by the small business or not
• Worker’s comp= anyone employed by the company and hurt on the job

It is easy to confuse these forms of insurance in part because they are similar in some ways. For example:

General Liability	Worker’s Comp
May pay for covered employee medical bills if injured on the job due to a covered event	By definition, pays for covered medical expenses when an employee is injured while working
May be state mandated for some small business	Is generally state mandated for small businesses even if they employ just one person

Differences include:

General Liability	Worker’s Comp
A common sense insurance choice for small businesses that may also be required for some industries	State regulated for most businesses
May or may not pay for employee injuries	Only covers employees with injuries sustained while on the job
Typically covers property damage and legal fees for covered events	Generally doesn’t cover property damage or legal fees
Designed to primarily cover negligence claims	Typically, no-fault insurance

What Type of Insurance Coverage Does Your Small Business Need?

Ideally, a small business would carry both of these important types of insurance. Worker’s comp, however, is state mandated. The laws vary by state but if you have even one employee, chances are you must carry worker’s comp.