How General Liability Insurance Works

All businesses need to protect their financial interests—no matter how unlikely a lawsuit against them seems. General liability insurance—also known as business liability insurance—is a form of insurance that protects businesses and their owners from general claims such as property damage or bodily injuries. Most businesses should take out a general liability insurance policy to protect them financially against claims.


Let’s take a closer look at what general liability insurance is and how it works.

What is general liability insurance?

General liability insurance is an insurance policy that can help cover the more general claims that can occur against a business. For example, if someone is injured in your store and sues your business, a general liability insurance policy can step in to help cover any medical expenses or attorney fees that your business may be legally responsible for.

Why do you need general liability insurance?

Why is it so important to secure a general liability insurance policy? Liability claims happen and when they do, they can get expensive quickly. These claims can be really hard to avoid and difficult to predict.


For example, slipping and falling is one of the main causes of emergency room visits. If you have an office or storefront that customers visit, it’s easy to see how an accident like this can occur even though the business may not be at fault. If someone slips and falls, the average cost of that type of claim is $35,000 and costs can increase to $75,000 if you go to court. If a business doesn’t have general liability insurance, they would need to pay these expenses out of pocket which could put a small company out of business.


Not only is general liability insurance a smart move, but in some cases you may need it if you want your business to thrive. If you work with other businesses, some partners may require seeing proof of insurance (aka a certificate of insurance) before they agree to work with you.


Even if you are a contractor or small business owner, you can benefit from having general liability insurance as one small accident may be more expensive than you can afford to pay for. Contractors may choose to only take on a general liability policy, whereas larger businesses may want to pursue a business owner’s policy that combines general liability insurance with a property insurance policy.

What does general liability insurance cover?

So, what type of protection does your business get when you pay for a general liability policy?


General liability insurance helps cover costly claims that can come up during normal business operations. If you don’t have coverage, you would have to cover these general liability insurance costs out of pocket and most businesses don’t have the financial resources to do that.


Typically, general liability insurance covers business for claims regarding:


     Third-party bodily injuries resulting from your products, services, or operations

     Third-party property damage resulting from your products, services, or operations

     Advertising injury if your business is sue for copyright infringement

     Reputational harm if you are sued for libel or slander

     Possible coverage if you are liable for damages made to your landlord’s property


Usually, this type of insurance doesn’t cover the cost of:


     Employee injuries

     Punitive damages


     Auto accidents

     Intentional acts



There are other types of insurance policies and insurance riders that can cover the events that a general liability insurance policy won’t cover. For example, a workers’ compensation insurance policy can cover work-related injuries or illnesses experienced by employees who need their medical expenses and ongoing care costs covered. To protect against damage to your business property, you would need commercial property insurance. And to help protect against claims made in your business’ professional services, professional liability insurance can provide coverage. Making sure you cover your bases with the right types of insurance policies is a key step to protecting your financial interests.

What types of liability insurance are available?

If you want additional protection to what a general liability insurance policy can provide, you can consider these other types of liability insurance policies:


     Commercial umbrella insurance. You can place this policy on top of an existing general liability policy to get more reimbursement for expensive claims. 

     Employment practices liability insurance. To help cover any legal defense costs and settlements or judgments when a former or current employee sues your business for employment-related harassment, discrimination or wrongful termination.

     Management liability insurance. This type of policy protects your business’ directors and officers from expensive claims.

     Commercial auto insurance. If you want to protect any employees (or yourself) who drive a car for business, you need a commercial auto insurance policy.