General liability (GL) insurance is the most fundamental business insurance policy. It protects your business from third-party claims of bodily injury, property damage, and advertising injury. Most businesses need it — and many clients require it before signing a contract.
General Liability Insurance Explained for Small Business Owners
Source: Concerning Reality
What General Liability Insurance Covers
- Bodily injury: A customer slips and falls in your store. GL pays their medical bills and any lawsuit.
- Property damage: Your employee accidentally damages a client's property while on the job. GL pays for repairs.
- Advertising injury: You're accused of copyright infringement, libel, or slander in your advertising. GL covers legal defense and settlements.
- Personal injury: Claims of false arrest, malicious prosecution, or invasion of privacy.
- Legal defense costs: GL pays your legal defense even if the lawsuit is frivolous — legal fees alone can exceed $50,000.
What General Liability Does NOT Cover
- Professional errors: Mistakes in your professional services — requires professional liability (E&O) insurance
- Employee injuries: Covered by workers' compensation
- Your own property: Covered by commercial property insurance
- Auto accidents: Covered by commercial auto insurance
- Intentional acts: Fraud, intentional harm
- Cyber incidents: Data breaches require cyber liability insurance
- Contractual liability: Liability you assume under contract (unless specifically covered)
Understanding Coverage Limits
GL policies have two key limits:
- Per-occurrence limit: Maximum paid for a single claim. Common: $1M or $2M.
- Aggregate limit: Maximum paid for all claims in a policy year. Common: $2M or $4M.
A $1M/$2M policy pays up to $1M per incident and $2M total per year. For most small businesses, $1M/$2M is sufficient. Higher-risk businesses or those with large contracts may need $2M/$4M or an umbrella policy.
What General Liability Insurance Costs
Annual premiums for small businesses:
- Low-risk (consulting, IT, retail): $400–$800/year
- Medium-risk (restaurants, contractors): $800–$2,000/year
- High-risk (construction, manufacturing): $2,000–$10,000+/year
Factors affecting cost: industry, revenue, number of employees, claims history, coverage limits, and location.
Who Needs General Liability Insurance
Almost every business should have GL insurance. It's especially critical if you:
- Have customers or clients visit your location
- Work at clients' locations
- Manufacture or sell products
- Have contracts that require proof of insurance
- Advertise your business
Even home-based businesses need GL — your homeowners insurance does not cover business liability.
