If you’ve heard it once, you’ve heard it a
thousand times: if you’re starting a business you’re going to need general
liability insurance. But what does that mean? What protection does it
afford? How do you determine your coverage needs? How does it work?
Read on.
What is
General Liability Insurance?
Liability
insurance (also known as Commercial General Business Liability) protects a
company’s assets and pays for obligations – medical costs, for example
–incurred if someone gets hurt on your property or when there are property
damages or injuries caused by you or your employees. Liability insurance also
covers the cost of your legal defense and any settlement or award should you be
successfully sued. Typically these include compensatory damages,
nonmonetary losses suffered by the injured party, and punitive damages.
General
liability insurance can also protect you against any liability as a tenant if
you cause damage to a property that you rent, such as by fire or other covered
loss.
Finally, it
can also cover claims of false or misleading advertising, including libel,
slander, and copyright infringement.
Does your
Business Need Liability Insurance?
We live in a
litigious society and even if you think you’re unlikely to face a claim,
getting insurance is a wise investment that doesn’t cost much – annual premiums
range from $750 to $2,000 depending on your line of business and coverage
needs. That’s certainly a lot less than the thousands, if not millions, of
dollars you may need to spend fighting your case in court.
General
liability insurance can be purchased on its own, but it can also be included as
part of a Business Owner’s Policy (BOP) which bundles liability and property
insurance into one policy. If you have a BOP, check it to see what your
liability coverage limit is. You may find that it is quite low, in which case
you may need additional coverage through a separate policy.
How to
Determine Your Coverage Needs
The coverage
you need depends on the type of business you are in and the perceived
risk associated with it. For example, a building contractor will need
more coverage than a web designer or consultant. Your business location is
also another factor that comes into play. For example, some states tend to
award more in damages to plaintiffs claiming personal injury than others. Talk
to a licensed insurance broker for advice on this before you rush out and buy a
policy.
As mentioned
above, if you fall into the lower risk category, you may want to consider a
Business Owner’s Policy (BOP) which combines general liability and property
insurance at a cost-effective rate.
How
General Liability Insurance Works
As with many
insurance plans, your general liability policy will outline the maximum amount
the insurance company will pay against a liability claim. So, if your small
business gets sued for $250,000 for medical costs associated with an injury
caused by a worksite hazard, plus an additional $100,000 in legal fees, but
your coverage maxes out at $300,000, then you are responsible for paying the
difference of $50,000.
If you
are on the higher end of the risk scale and already have general liability
insurance, you can also opt for excess insurance or umbrella
insurance that increases your coverage limits. This will cover you in
situations in which you’re worried that your existing coverage won’t cover all
your costs should someone file and win a claim against you.
Be sure to do
your industry research before you invest in any policy. Sometimes a client
contract will require that your business has the appropriate coverage or
umbrella insurance to perform work on their behalf. Likewise, some construction
contractors may add you to their general liability policy as an additional name
to be insured for the duration of the project.
Filing a
Claim
If an
incident occurs that may lead to a claim, you should notify your insurance
company or agent immediately. Be prepared to explain what has happened in
detail including the time, date, the names of any witnesses, and any other
pertinent information.
