What Small Business Owners Should Know About General Liability Insurance

November 2, 2022

What Small Business Owners Should Know About General Liability Insurance
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Small business owners have a demanding job that requires them to wear many hats, from “digital marketing pro” to “customer service expert.” But the hat that causes business owners the most stress is that of “risk manager.” Anything from a slippery floor to a stock photo in an ad can put your business at risk — potentially closing your doors.

That's where general liability insurance comes in.

What should small business owners know before getting general liability insurance coverage? Let’s take a look at that below.  

What is General Liability Insurance?

General liability insurance (often nicknamed "GLI") protects your business from legal claims that arise from your normal business operations. According to The Hartford, a firm that has insured over one million small business owners, the average general liability insurance policy costs $1,057 annually ($88 a month).  

What Does a General Liability Insurance Policy Cover?

General liability insurance covers customer bodily injuries, employee property damage, and personal injuries like libel and slander.  

According to The Hartford, the graphic below shows the most common general liability claims for small businesses:

Source: The Hartford

General liability business insurance won't cover the following:

  • Commercial auto accidents (you'll need commercial auto insurance)
  • Employee injuries and illnesses (you'll need workers' compensation insurance)
  • Damage to the business property itself (you'll need commercial property insurance)  
  • Professional mistakes or misconduct (you'll need professional liability insurance)
  • Illegal acts

Why Does a Business Need General Liability Insurance?

According to The Hartford's data, 35% of general liability claims lead to a lawsuit. The average general liability lawsuit costs $75,000 (and that's if you settle). Legal defense costs alone average $300 an hour.

Lawsuits aren't the only costs you incur without business insurance. The graphic below shows the ten most expensive general liability claims costs without insurance:

Source: Insurance Journal

Even if your business can shoulder these financial burdens, you'd need to divert funds away from expanding your business with new projects — an action that carries a high opportunity cost.  

When Should a Business Owner Get General Liability Insurance?

You should get general liability insurance if your business does any of the following things:

  • Sells to the public or clients through a store, stand, restaurant, or café
  • Conducts work near or on client property (including commercial property and homes)
  • Advertises products and services through TV, radio, newspapers, billboards, social media, Paid-Per-Click (PPC) ads, influencers, or content marketing  
  • Interacts with customers and clients face-to-face  
  • Produces products or services with specialized equipment  

5 Ways General Liability Insurance Can Help a Small Business

General liability insurance is an investment in your business, employees, property, customers, and growth. Here are five ways having insurance can help your business long-term:

1. It Takes Care of Customers

Customers are an accident-prone bunch. Whether it’s knocking heavy items off a shelf, slipping on a muddy floor or breaking something sharp, injuries are bound to happen when your business invites the public in. Insurance will cover your customers' medical expenses, helping them heal faster without worry. And if you take care of customers, they'll support your business. You also won't have to worry about reputational damage, negative reviews, or local boycotts.  

2. It Expands Your Vendor Options

To mitigate risks, many vendors won't work with businesses that aren't covered by insurance. It's not uncommon for vendors to require proof of insurance so they know you can survive a liability claim. General liability insurance protects you and your supply chain, meaning more vendors will want to work with you.  

3. Property Damage Won't Slow Down Your Sales

The Hartford's data shows that water and freezing damage (15%), wind and hail damage (15%), and fire (10%) make up 40% of all property and liability claims. One major cost associated with these incidents is damage that makes it impossible to produce and sell your goods. No selling equals no revenue. General liability insurance covers property damage, so it helps you secure the funding you need to repair your equipment and get back to normal business operations ASAP.  

4. You Can Pursue Competitors Who Slander You

Reputational harm is the most expensive liability claim, costing $50,000 on average. Reputational damage can also have long-term consequences. It can reduce your customer base, damage your sales, scare off vendors, create a stigma around your products/services, and damage customers' trust in you. General liability insurance gives you the backing to pursue competitors who damage your brand through libel (written defamatory statements) and slander (spoken defamatory statements).  

5. It Protects You No Matter Your Revenue

You don't need to be a Fortune 500 company to get general liability insurance. It's not revenue-based, so it's suitable for businesses of all sizes. Some insurers, like The Hartford, can also save you money on your insurance premium. The Hartford takes the following factors into account when calculating your premium:

  • Risk exposure  
  • Business location
  • Years in business  
  • Type of business (premiums are higher for construction, cleaning, landscaping, and food and beverage companies)
  • Coverage limits  
  • Claims history
Photo Credit: Canva

Do You Need General Liability Insurance?

If your business has a public-facing store, travels to clients' businesses or homes, or advertises itself, you should protect your operations with general liability insurance.  

Idea Financial recommends our partner, The Hartford, for your general liability insurance needs. And, if you need a Line of Credit (LOC), business funding, or a business loan, Idea Financial can help. With Idea Financial, you can:

  • Take out loans of up to $250K
  • Get a same-day decision and next-day funding
  • Pay lower interest rates

Apply for a loan today!