Today, someone can sue you for something as small as a spilled coffee or a knee twist on your property. As a business owner, you should always be aware that something that seems small could turn into a significant legal problem. If you don’t have general liability insurance, you could pay a lot of money out of your pocket, putting your business out of business.
What Is General Liability Insurance?
General liability insurance protects your company’s assets if it is sued for something it is thought to have done or something that happened and hurt someone or damaged their property. The insurance company will pay legal fees and damages if the policy covers a lawsuit or claim. In most cases, bodily, property, personal, and general injuries are covered. Punitive damages are usually not covered because they are only given when proven that the act was done on purpose.
Aggregate Limit Vs Per-occurrence Limit
There are two main types of limits on general liability insurance: an aggregate limit and a per-occurrence limit.
- Aggregate Limit: This is the most your insurance company will pay for all your claims in a given year or policy period.
- Per-Occurrence Limit: This is the maximum amount the insurance provider will pay for each claim filed.
Is General Liability Insurance Legally Required?
In most states, you don’t have to have general liability insurance. But in some states, you need insurance to get licensed to work in specific jobs. Talk to the insurance agent you’re working with to determine what the law says. If the licensed agent you talk to can’t answer your question, check the website of your state’s insurance commissioners.
How Much Business Liability Insurance Do You Need?
Now that you understand why you need general liability, we’ll discuss how much coverage is necessary to protect your business.
General Liability Coverage Limits
The average insurance company’s policy will pay up to $1 million per event and $2 million. Some start at $300,000 and up to $2 million for a small business. Coverage can also be different depending on what part of your policy you have:
- Medical Expenses: This part of the policy pays for any medical care someone needs to get better after getting hurt. Some insurance plans only cover up to $10,000 this way. Most of the time, people who say their injuries will cost more than that will sue your business for damages.
- Personal and Advertising Injury: The limit related to advertising injury is typically the same as the general and per-occurrence policy limits.
- Damage to the Rented Space: If the rented space gets damaged, some insurance companies will help pay for it. Most of the time, it’s capped at either your total limit or $1 million, whichever is less.
How Your Insurance Agent Determines How Much You Need
How much liability insurance does your company need? Knowing how much insurance you need to protect your business is essential; an insurance agent will ask you some key questions.
- What services do you offer?
- How many employees do you have?
- How big is your business?
- Where is your business located?
- Is your business an LLC, partnership, or sole proprietorship?
These are some of the questions they might ask to better understand what coverage you need.
When You Would Need More Coverage?
When would you need more coverage than what’s already in place? If your agent thinks your liability is more significant than what a general liability policy could cover, they suggest you get a commercial umbrella policy.
It can cover things that need to be covered by the primary policy and sometimes things that need to be covered at all, and it costs less than raising the policy limits on your primary policy.
You will also need extra insurance for things that general liability doesn’t cover, like:
- Workers’ Compensation Insurance
- Commercial Auto Insurance
- Commercial Property Insurance
- Professional Liability Insurance
What Is The Structure Of Your Business?
When figuring out your risk, you should consider how your business is set up. If you’re sued and your business is incorporated (i.e., LLC), the most you’ll lose is the business’s assets. If your business is a sole proprietorship, you may have to pay for any settlements or judgments against it. To protect your family, you’ll need policy limits that are much higher in this case.
How Much Do General Liability Insurance Policies Cost?
Several things affect how much general liability insurance costs. These all affect the rate you pay to protect your business. The price is based on the following factors:
- Coverage Limits: The high coverage limits (both per event and overall) make the insurance fee more expensive. Most coverage starts at around $1 million per event and $2 million total, but these numbers can change.
- Size and Type of Business: Larger companies and those in fields with higher risks usually have to pay more for insurance because they are more likely to be sued.
- Location: Insurance costs can be different in each state and area. Premiums may be higher when natural disasters occur more often or a crime is more common.
- Claims History: Repeated claims or cases can make insurance more expensive because they show the insurer that the policyholder is more likely to be hurt.
- Business Activities: The premium is affected by the services you provide and your company’s day-to-day activities. Higher fees may be needed for more complicated or dangerous treatments.
- Deductibles: Choosing a larger deductible will decrease your rate since you will pay more out of cash before the insurance coverage begins.
- Extra Coverage: You can combine general liability insurance with other types of insurance, such as property or professional liability insurance.
- Small Business: Depending on the above factors, a small business could pay between $400 and $1,500 a year for general liability insurance.
- Medium-sized to large businesses: For complete security, larger companies or those that face more risk may have to pay several thousand dollars a year.
Conclusion
General liability insurance is a crucial safety net for businesses because it protects them from unplanned lawsuits and potential financial ruin. It is essential to know the coverage limits and choose the right amount based on the size of your business and the risks it faces.
Businesses can effectively lower risks and ensure they are fully protected against liabilities by talking to an experienced insurance agent and considering getting extra coverage if necessary. In today’s litigious world, buying general liability insurance is smart for protecting and keeping your business assets running smoothly.