General Liability: Expectations vs. Reality

For a lot of entrepreneurs, getting insurance is a stressful thing. The fact is, every business needs some sort of insurance, so you can’t hide from it. The results could be disastrous for your business. You could find yourself facing lawsuits you can’t afford or having to pay someone compensation out of your personal assets. Insurance will protect you against much of what the world might throw your way. In an ideal world, you would never have to make an insurance claim, but that is not the reality. Either way, having insurance will help you sleep at night, knowing you are protected. 

General liability insurance is the type that every business should have. It protects you against lawsuits related to incidents involving your business, causing injury or property damage. However, even though every business should have it, many owners don’t understand what general liability coverage is and what it isn’t. Here is the reality of what is when compared to common expectations from new and veteran entrepreneurs. 

Expectation: My small business doesn’t need general liability

When you own a small business, there’s no doubt that you want to find an opportunity to save money. Unfortunately, some incorrectly think they can avoid paying for general liability insurance, or any insurance at all because their business is too small. This couldn’t be further from the truth. In fact, small businesses are even more at risk from a lawsuit since they don’t have the ability to protect themselves against unexpected catastrophic costs. 

If you think of the smallest business imaginable, you probably picture a single person working on a laptop at home. While it’s true that your business will not have many opportunities to come into contact with the public and thereby cause injury, there are still risks. For example, if you store consumer data on your computer or in a cloud server, then there is always the chance of a data breach. An affected client could try to hold you liable for that breach. You could also be accused of defaming another business or person by something you post on social media or in marketing content. General liability will help protect against that as well. 

Expection: General liability is all I need

For some businesses, like the “single person with a laptop” business, general liability might be all that’s needed. However, that is most often not the case. General liability insurance does protect against many types of risk. However, it doesn’t cover you for everything that might happen.

Depending on the type of business you are running and your specific situation, there are any number of possible hazards. For example, you will need commercial automobile coverage if you have a vehicle for your business. You will also need commercial property insurance. This would apply even if you work from home in many situations. Personal homeowners' policies often will not cover equipment or rooms used primarily for your business. You may also need errors and omissions insurance if you are a service-based business. If you have employees, you are required by law to have workers’ compensation coverage. 

Expectation: Every business needs the same insurance coverage

When you are starting out and setting up a projected budget, you can’t ask friends and acquaintances what they pay for insurance and assume it will be the same for you. Every business is different and operates under different circumstances. This is true even when businesses are in the same industry and do the exact same things. Your location could dictate how much risk you have for causing an injury and property damage to someone else. Besides liability insurance, you may need additional coverage for flood insurance where another business does not have that risk, as an example. 

Only some business general liability policies are built the same, as well. You can add on different options, such as cyber-attack insurance. When setting a budget, it’s always important to get quotes for your insurance so you have a good idea of what it will cost. Otherwise, you might be disappointed when it turns out that your coverage will cost much more than expected. 

Expectation: You don't need professional liability coverage if you have general liability

This is a very common misconception. While they both have liability in their names, general liability and professional liability are not the same, nor is one included with the other. General liability protects you against various risks associated with personal injury and property damage. It can also protect against claims of defamation and data breaches. 

Professional liability insurance protects your business against claims from other parties that you have caused them a loss. This means that your business has made an error, missed a deadline, or taken some sort of action that financially harms a client. They can then make a claim against you to recover those losses. You will not be covered without professional liability, even with general liability coverage. Professional liability is also called errors and omissions insurance and has other names within specific professions. Not all businesses need it, but service businesses, such as financial services, contractors, doctors, lawyers, and others, require this type of protection. 

Expectation: General liability insurance will cost too much and isn’t worth it

This is a dangerous assumption to make. If you are very diligent about safety and protecting your clients and the public, you will never have to use liability insurance. While it’s possible that you never need your insurance, the fact is that it’s not worth the risk. Even a small lawsuit can cost you thousands and thousands of dollars. It can drag on for years, costing you money the entire time. If you don’t have coverage, you will have to rely on assets to fund your defense. Plus, the fact is that you can get sued for any reason, even if you’ve done nothing wrong. 

Insurance isn’t just about having it to use. It’s important because it also gives you peace of mind and confidence that your business is protected. You can take risks and make changes to your operations while knowing that if something bad happens, you can weather the storm. 

Millions of businesses are sued every year. Even if you don’t think it’s possible, it can happen to you, even if you don’t deserve it. The last thing you want is for your business to have to close because of an error or a single incident. With general liability insurance, you will be protected, but you must understand what it is and what it isn’t.