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Learn the Basics of General Liability Insurance

Commercial General Liability Insurance

Understanding business insurance terms isn’t something we’re born with and our parents don’t think to teach them to us as children. Heck, it’s not part of our high school curriculum. However, if you’re a small business owner you have to know them. Especially the really important ones like commercial general liability insurance.

So for those of you out there looking for a better understanding of commercial general liability insurance, one that any small business owner can use, here you go:

  • Commercial General Liability Insurance is the insurance policy that pays for a business’s legal expenses when it has a claim presented to it or is sued by parties other than its employees.
  • Claims and lawsuits covered under the Commercial General Liability Insurance policy may include property damage, bodily injury, slip-and-fall accidents, slander, libel, copyright infringement, product liability, and more.
  • General Liability Insurance is not for claims or lawsuits over professional conduct, negligence, or omissions, that’s professional liability insurance (also known as errors and omissions insurance)

Example of commercial general liability insurance

A small market discovers its refrigeration system has malfunctioned, and it has stopped working. As the store owner waits on the repair services to arrive, condensation drips onto the floor creating a slippery puddle.

Before the store owner can place a hazard sign, a patron walks through the puddle, loses traction, and falls to the ground hurting his back. The customer sues the store for $100,000 for injuries and lost wages.

Commercial general liability insurance is the form of insurance that would pay for the customer’s injuries, and claims of lost wages, and provide a legal defense for the store in the event of a covered loss.

Let’s go deeper, what is business insurance?

The first thing that all consumers who buy insurance, either for personal or business reasons, need to understand is that their insurance is a contract.

In this contract, the insurance company is exchanging their services for the premiums you pay annually. The insurance contract outlines exactly what these services are, the nature of things it will pay for, and the limits to which the insurance company will pay.

In your commercial general liability insurance, your policy will likely outline the types of perils (essentially the groupings of types of lawsuits) that the policy covers.

The amount of coverage is called the limit of liability. The most common limits purchased by small businesses are a $1,000,000 per-claim limit and a $2,000,000 per-term limit. This means the insurer can pay $1 million toward any one claim and can pay a total of $2,000,000 over the term of your policy, which is usually a year.

In this sense, your insurance policy is really a contract that describes how and to what extent you’ll be protected from lawsuits.

Why is General Liability Insurance helpful?

Commercial general liability insurance is one of the most important insurance protections that a small business can own. Nearly all activities that a small business will undertake have some form of risk. It’s business insurance generally, but most specifically general liability insurance, that allows the small business owner to undertake these risks without the fear of financial ruin in the event of an adverse outcome.

Still not sure how it helps, here are a few things that can occur where commercial general liability insurance protection will help the small business owner.

  • Sign contracts with new clients.
  • Afford the cost of a lawsuit.
  • Avoid bankruptcy.
  • Acquire professional licenses.
  • Rent a professional office space.
  • All non-employees are to enter your premises
  • Advertise and market your business
  • Sell and/or manufacture products for consumer consumption

Commercial general liability insurance doesn’t actually perform any of these functions. So, how does it do all these things? Well, for starters it provides you the financial security and understanding that if one of these activities turns into a lawsuit, your business will not suffer a catastrophic financial loss.

In addition to your basic protections, commercial general liability Insurance will likely be required by your clients, local governments, and landlords when you enter into contracts with them. For instance, your landlord will require proof of general liability insurance before you can receive your keys and move in.

What kinds of businesses need general liability insurance?

Commercial general liability insurance is the most common of all forms of business insurance, so nearly all small businesses secure this form of insurance. As we said earlier, there are many ways a business can be subject to liability, so if your business conducts any business where it enters into contracts, advertises, and will have consumers or prospects at its facilities, then it will need a general liability insurance policy.

Still not sure why?

Because most business owners do one of more of the following:

  • Interact with clients/customers on their premises.
  • Have a store or building that’s open to the public.
  • Interact with people on a job site.
  • Handle client property.
  • Rent business space.
  • Sell products to customers.
  • Advertise or market their businesses.
  • Use social media / have an Internet presence.

Your commercial general liability insurance protects your business from these types of things when you find yourself in a lawsuit for an alleged liability.

Can I save money on commercial general liability insurance?

Finding savings for your business insurance is a common question we receive. The first way to avoid higher premiums is to have good procedures, policies, and reviews of your practices to avoid losses. Losses can cause your premiums to rise … just like with your other forms of insurance.

When you’re shopping, here are two (2) simple ways to get lower premiums for commercial general liability insurance:

  • Shop around, or use an independent insurance agent who can shop for you, so you can see multiple prices and coverage options.
  • Buy general liability insurance as a bundle along with Property Insurance to get premium savings.

Another way to save money, one that is afforded to small business owners, is to purchase your business insurance as a bundle called a Business Owner’s Policy. Many small-business owners are quick to take advantage of the cost savings business owner’s policies, where they can get a broad range of coverages, including commercial general liability and commercial property insurance,  at a competitive premium.

The bottom line

Commercial general liability insurance is the feature of business insurance that protects your business needs. It affords the protection your business needs to interact with prospective customers and clients, enter contracts, and advertise to the public. Review all your options, and make sure you are making the right choices for your business, and if you have any questions, contact a business insurance agent to get more details.

Image Source: Ian Baldwin

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