General liability vs. Professional liability insurance

Considering the numerous disasters that might severely impact a business’s bottom line, it’s essential to purchase business liability insurance that will protect the business’s financial interests from official lawsuits or third-party claims. 

But buying liability insurance can be a confusing endeavor as you navigate through various choices. You may be offered multiple insurance plans, including general liability and professional liability insurance. Should you buy one or both insurance coverages?

The answer depends on the type of business you run and its specific insurance needs. However, you may find that most businesses need general liability insurance while only some need professional liability coverage. The two liability coverages are distinct and serve different purposes, and neither is a substitute for the other.

What is general liability insurance?

General liability insurance protects your business from common lawsuits and takes effect when a third party sues your business for:

Bodily injuries – The most common claim which protects against physical injury to people incurred on your commercial premises. For example, if someone is harmed at your place of business, a general liability policy would pay their medical expenses. In cases as simple as a customer who trips on your store’s floorboard results in a bodily injury claim.

Property damage – For damage to property that belongs to someone else, your business may be held legally accountable. For example, damage to a client’s house or other property while on business.

Reputational harm – If someone files a lawsuit against you for libel, slander, malicious prosecution, wrongful eviction or privacy violations, general liability insurance kicks in. For example, if you say anything terrible about your competitor on national television which can have a negative impact on their business, you will be sued.

Copyright infringement – If a competing business accuses you of using their work without their consent in your business ad or other commercial marketing, general liability insurance coverage can help.

Advertising injuries – If your firm defames another business owner, or firm in their advertisement, you may face a lawsuit.

What is covered under general liability insurance?

General liability insurance covers legal fees incurred as a result of third-party lawsuits. Attorney’s fees, court costs, and settlements or judgments could all be included. These claims can be made by any small business owner, regardless of their business size, sector or industry. 

What is professional liability insurance?

Professional liability insurance is also termed as errors and omissions insurance (E&O) which covers the costs of professional malpractice claims, such as court judgments and settlements, legal fees and other sorts of payments, such as licensing board penalties.

Without the proper professional liability insurance, errors and business disagreements can be expensive.  For example, if an accountant files an incorrect tax return for a client, there will be a penalty cost imposed for negligence arising from professional mistakes.

What is covered under professional liability insurance?

Critical for service providers, this policy is equally important for small business owners as it protects against third-party lawsuits claiming –

–        Incorrect advice

–        Negligent professional services

–        Misrepresentation

–        Substandard work

–        Breach of contract

How is general liability different from professional liability insurance?

The key difference between general liability and professional liability is the types of risks and damages they cover, below is a comprehensive look.

They cover different risk exposures. General liability insurance provides coverage for physical risks, encompassing bodily injuries and property damage. In contrast, professional liability insurance covers more abstract risks, including mistakes and omissions, and negligence within the services rendered by your business.

They have different coverage scopes. General liability insurance covers claims resulting from physical damage or injuries that may arise from everyday business operations. It can include client slip and falls on your business premises. On the other hand, professional liability insurance protects you only from financial losses that stem from professional errors.

In some instances, a general liability policy may cover product liability insurance for contractors, retailers, manufacturers and other business owners. It protects the insured from lawsuits arising from completed work that causes bodily harm to another person. Although this appears to be an area of professional liability, physical damage is the deciding factor. Professional liability insurance covers disputes involving financial losses caused by a third party’s products or services.

What insurance does your business need?

When deciding between general liability and professional liability insurance, it is crucial to consider the unique risks and needs of your business. That being said, almost every business will need general liability insurance. However, if you are a professional advice-giving or service-providing business, you probably need professional liability insurance as well.

Want more? Escalon has helped over 5,000 small businesses across a range of industries to optimize routine business functions, like taxes, accounting, insurance and HR. Talk to an expert today.

This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.