General Liability Insurance, Explained

A customer trips over a cord at your pop-up. A ladder scuffs a client's hardwood floor. Another business says your ad copies their slogan. None of these are rare, and any one of them can cost more than a small business has in the bank. General liability insurance is the policy most small businesses start with for exactly these moments.

What General Liability Covers

General liability, sometimes called commercial general liability or CGL, protects your business when someone outside it says you caused them harm. Most policies cover three kinds of claims:

• Bodily injury: a customer, vendor, or visitor is hurt because of your business, like a fall in your shop or at an event booth.
• Property damage: you or your work damage someone else's property, like a spill on a client's carpet or a broken window during an install.
• Personal and advertising injury: claims like libel, slander, or using someone else's protected advertising idea in your marketing.

When a covered claim comes in, the policy typically pays for legal defense and for settlements or judgments, up to the policy's limits. Legal defense alone can be expensive, even when the claim turns out to be groundless.

What It Does Not Cover

General liability is broad, but it is not everything. Common gaps, and the policies that usually fill them:

• Mistakes in your professional work, like bad advice or a missed deadline that costs a client money: professional liability, also called errors and omissions.
• Injuries to your own employees: workers' compensation. Most states require it once you have employees.
• Your own building, equipment, and inventory: commercial property insurance.
• Vehicles used for business: commercial auto insurance. A personal auto policy may not cover business use.
• Data breaches and hacked accounts: cyber liability insurance.
• Damage you cause on purpose, and many contract disputes.

Many insurers bundle general liability with commercial property in a business owner's policy, or BOP. It can be a simpler way to cover the basics for small businesses that qualify.

Who Needs It

General liability is not usually required by state law. In practice, many businesses need it anyway:

• Landlords often require it in a commercial lease.
• Clients, especially larger companies and government agencies, often ask for proof before you start work.
• Event venues, markets, and festivals usually require it for vendors.
• Some licenses and permits require it, particularly in construction and other trades.
• Any business that meets customers in person, works at customer sites, or handles customer property is exposed to the kinds of claims it covers.

An LLC Is Not Insurance

Forming an LLC can protect your personal assets from the business's debts and lawsuits. It does not pay claims. If the business is sued and loses, the LLC's own money and property are still at risk, and a large claim can close a small business. You can also still be personally responsible for your own actions, such as injuring someone yourself. Insurance and an LLC work together: the LLC separates you from the business, and insurance protects the business. The What Is an LLC? guide explains what the LLC does and does not do.

Words You Will See on a Quote

• Per-occurrence limit: the most the policy pays for a single claim.
• Aggregate limit: the most it pays for all claims during the policy period, usually a year.
• Deductible: what you pay before coverage starts, if the policy has one.
• Certificate of insurance: a one-page summary you send clients and landlords as proof of coverage.
• Additional insured: a client or landlord added to your policy for claims related to your work for them. Contracts often require this.

If Something Happens

1. Take care of anyone who is hurt first, and call for help if needed.
2. Write down what happened while it is fresh: the date, time, place, people involved, and witnesses. Take photos.
3. Tell your insurer or agent promptly, as your policy requires. Late notice can complicate a claim.
4. Do not admit fault or promise to pay for damages before you talk with your insurer.
5. Keep copies of every letter, email, and bill related to the incident.

How to Choose Coverage

Start by listing what could realistically go wrong in your business, who you work with, and what your contracts and leases require. Then compare quotes with the same limits, and read what each policy excludes. Price depends on your industry, location, revenue, claim history, and the limits you pick, so two businesses rarely pay the same. Review your coverage every year and when you add employees, services, or locations.

Keep your policy and certificates with your other records, and update the address and business name on the policy if they change. Contracts Every Small Business Should Have covers the client agreements that often spell out insurance requirements. Our business insurance service helps you understand the coverage types and find options to compare, and it works on its own.

This post is general information, not insurance or legal advice. Coverage depends on the exact policy, and requirements differ by state, so read your policy and talk with a licensed insurance agent before you buy.

Insurance is the plan for the day something goes wrong. Make it before you need it.