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When do you need general liability insurance?

Posted by Neha De

October 1, 2021    |     4-minute read (738 words)

From the moment an entrepreneur starts a business, they expose themselves to certain risks. One lawsuit can be enough to shut down a small enterprise before it even has a chance to get off the ground — the average customer injury insurance claim can go up to $35,000. Therefore, it’s crucial for business owners to ensure they have the right insurance for all kinds of business risks so as not to leave themselves exposed and vulnerable. 

Fortunately, entrepreneurs can get general liability insurance for their businesses. It is a standard insurance policy that covers some of the most common exposures that a company faces. Also called commercial general liability insurance and business liability insurance, general liability insurance can help protect a business from property damage and bodily injury claims. Such claims can come up during regular business operations. Without coverage, one would have to pay for damages out of pocket, and most small businesses don’t have the resources to do that.

What general liability insurance typically covers

Any claims that a business has caused are covered under general liability insurance. Four such instances are: 
  1. If a visitor slips and falls in your workplace and gets injured, they can sue your company for damages. General liability insurance covers third-party bodily injury, so you can use it to pay for their medical bills.
  2. If you or one of your employees works out of a client’s office and ends up causing damage to their property. This insurance policy includes third-party property damage, which can help you cover repair or replacement costs in such cases.
  3. Suppose someone sues your firm for slander or libel because of something one of your employees has said or written. A general liability insurance policy can help cover your legal costs to defend your organization.
  4. A general liability insurance policy is helpful in case your company gets sued for copyright infringement. For example, you can get sued by a photographer if you use one of their photos in your ads without consent.
What general liability insurance does not cover

A general liability insurance policy does not cover all kinds of claims. Three such claims not covered under this policy are: 
  1. Illnesses or work-related injuries sustained by staff members are not covered under general liability insurance. For such claims, you can get a workers’ compensation insurance policy to help you pay for their medical costs and ongoing care expenses.
  2. General liability insurance does not cover damage to your company property. Commercial property insurance can be used in this case.
  3. Any mistakes made in your firm’s professional services are covered under professional liability insurance, not general liability insurance.
Other situations where general liability insurance may be required 

Here are four common scenarios where a small business may need a general liability insurance policy:  
  1. Suppose you are a property owner and are looking to lease out your property to a company. In that case, you will most likely be required to procure a general liability insurance policy which also contains the name(s) of the landlord (in addition to the tenants) as an additional insured. Additional insured endorsement is a modification to an existing insurance policy that extends limited coverage to entities not already named on the policy. This amendment releases the property owner of any liability in claims where the tenant organization is at fault. 
  2. If you are bidding for a contract, you may be required to show proof of insurance to fulfill requirements. While this is typical in cases of large contracts with the city, state or federal government, large private organizations may also only want to work with insured businesses.
  3. Independent contractors usually need general liability insurance, especially when they may be hired as subcontractors on a larger project. The general contractor may want the subcontractors to be insured.
  4. Certain professions need state licenses and, in some areas, one such requirement may be to have a general liability insurance policy.
Takeaway

A study revealed that 40% of businesses are likely to experience a property or general liability claim at some point. And in case of a lawsuit, the average general liability claim can average more than $75,000 to defend, as it involves paying court costs, attorney bills and any settlements or court-awarded judgments. 

That said, it is not just the potential cost that makes having general liability insurance a good idea. Companies that have general liability insurance are usually considered more legitimate.

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