General Liability Insurance: What It Covers and What It Doesn't

Why General Liability Insurance Matters

Every business that interacts with customers, vendors, or the public faces exposure to liability claims. A customer slips on your wet floor. A product you sell injures someone. Your employee accidentally damages a client's property. General liability insurance exists to cover these scenarios.

Without it, a single lawsuit can drain your business account and put everything you've built at risk. Most commercial leases require it. Many clients require it before signing contracts. It is the baseline policy every business should carry.

What General Liability Covers

General liability insurance (GL) typically covers three core areas:

Bodily Injury — If someone is physically injured on your premises or as a result of your business operations, GL covers medical expenses, legal defense costs, and settlement or judgment amounts. This applies whether the injured party is a customer, vendor, delivery driver, or passerby.

Property Damage — If your business operations damage someone else's property, GL covers the repair or replacement cost. This includes damage caused by you, your employees, or your products.

Personal and Advertising Injury — This covers claims of libel, slander, copyright infringement in advertising, wrongful eviction, and invasion of privacy. If a competitor claims your ad campaign copied their materials, this coverage applies.

What General Liability Does NOT Cover

This is where business owners get burned. GL has clear exclusions:

• Your own property — GL only covers damage to other people's property. Your building, equipment, and inventory need a separate commercial property policy.
• Employee injuries — Workers' compensation is a separate, legally required policy in most states. GL does not cover on-the-job injuries to your own employees.
• Professional mistakes — If you give bad advice, make an error in your professional service, or fail to deliver a project correctly, that is a professional liability (E&O) claim, not GL.
• Auto accidents — Business vehicles need commercial auto insurance. GL excludes vehicle-related incidents.
• Intentional acts — If you or an employee deliberately causes harm, GL will not cover the claim.
• Cyber incidents — Data breaches, hacking, and digital theft require cyber liability insurance.

How Much Coverage Do You Need?

Most small businesses carry a GL policy with:

• $1 million per occurrence — The maximum the insurer pays for a single claim
• $2 million aggregate — The maximum the insurer pays total during the policy period

For contractors, construction firms, and businesses with higher physical risk, you may need higher limits or an umbrella policy that adds additional coverage on top of your GL.

Cost Factors

GL premiums depend on several variables:

• Industry — A roofing contractor pays far more than an accounting firm
• Revenue — Higher revenue generally means higher premiums
• Location — Operating in a high-litigation state increases costs
• Claims history — Previous claims raise your rates
• Number of employees — More employees mean more exposure

Most small businesses pay between $400 and $2,000 annually for GL insurance. High-risk industries pay significantly more.

Certificates of Insurance

When a client, landlord, or general contractor asks for proof of insurance, they want a Certificate of Insurance (COI). Your insurer can issue this document, which lists your coverage types, limits, and effective dates.

Many contracts require you to name the other party as an "additional insured" on your policy. This gives them certain rights under your GL coverage if a claim arises from your work.

Common Mistakes to Avoid

Buying the cheapest policy without reading exclusions. Low premiums often mean narrow coverage. Read your policy declarations page and exclusions section carefully.

Assuming GL covers everything. It does not. You likely need multiple policies to fully protect your business.

Letting your policy lapse. A gap in coverage means you are fully exposed during that period. Set up automatic payments and track renewal dates.

Not updating your policy as you grow. If your revenue doubles or you add employees, your coverage limits may no longer be adequate. Review your policy annually.

How to Purchase General Liability Insurance

You can purchase GL through:

1. An independent insurance agent who shops multiple carriers on your behalf
2. A direct carrier like Hiscox, NEXT, or The Hartford
3. An industry association that offers group rates to members

Get at least three quotes. Compare not just price, but coverage limits, exclusions, deductibles, and the carrier's AM Best rating (financial strength).

The Bottom Line

General liability insurance is not optional for any business that interacts with the outside world. It protects against the most common claims — bodily injury, property damage, and advertising injury. But it is not a catch-all. Understand its limits, pair it with other necessary policies, and review your coverage every year.