General Liability Insurance: Coverage and Costs for Small Businesses

For the vast majority of small business owners, general liability insurance is a necessity. Without this type of coverage, a single lawsuit could devastate your business. Therefore, if you’re thinking about investing in small business insurance, this is one of the first policies you’ll want to consider.

In this guide, we’ll explain how general liability insurance works, including what it does and does not cover, as well as what it costs—so you have all the information you need to find the best insurance for your business.

General liability insurance, sometimes referred to as commercial general liability insurance or simply business liability insurance, protects your company from third-party claims of bodily injury, property damage, and personal injury that arise from your business operations.

As an example, if someone sues after slipping and falling at your retail shop, general liability insurance will cover their medical expenses as well as the costs of defending the lawsuit. For this reason, general liability insurance is also called “slip and fall” insurance.

This being said, you can purchase general liability coverage from an insurance provider on its own, but it’s often packaged with property insurance as part of a business owner’s policy (BOP).

Although general liability insurance isn’t mandatory by law, all small businesses should at least consider investing in one of these policies—including contractors and sole proprietors.

In particular, companies that have an office or store that’s open to the public or to clients should have general liability insurance.

Moreover, in the following types of scenarios, commercial general liability insurance might be required:

• Local governments might require general liability insurance from construction businesses and other businesses in specific industries.
• A landlord might require liability insurance when you sign a commercial lease.
• You might need to show proof of general liability insurance when applying for a business loan.
• If you plan on contracting with other companies, it is likely they will require you to show proof of liability insurance. This is the other company’s way of ensuring that your business can survive a liability claim and meet your end of the contract obligations.

All in all, even if you don’t fall into one of these scenarios or have a brick and mortar location, general liability coverage is still important.

For example, you can still be sued if your advertising practices infringe on another business. And wherever you provide services from, you could inadvertently injure another person or someone else’s property. General liability insurance is designed to protect against such risks.

Although there may be some slight variations based on the provider, most general liability insurance policies are based on the standard forms published by the Insurance Services Office (ISO).

This being said, under the ISO’s standard language, general liability insurance covers the following types of claims:

• Bodily injuries
• Medical payments
• Property damage to other property (but not to the business’s own property)
• Advertising injuries and reputational injuries, such as libel or slander

Most people think only of slip and falls when they think of general liability insurance, but the scope is broader than that.

General liability insurance extends to a variety of claims arising from your business services and operations. Actions by you, your business partners, and employees are covered.

Therefore, if a third-party makes a claim against your business, your commercial general liability insurance policy should help cover costs for:

• Medical expenses for the injured party
• Replacement or repair of damaged property
• Administrative costs associated with handling claims
• Legal fees to defends your business in a lawsuit, including lawyer fees and witness fees
• Evidence and other court costs
• Judgments or settlements

Here are some examples of what general liability insurance would cover:

• Your employee is hanging a sign over your shop window. The sign falls and damages the property of a neighboring business. That business sues your company.
• You run an online ad, and a competing business claims that you’ve used one of their trademark slogans and files a lawsuit against you.
• In an interview, you answer a question about the president of a competing business. The competitor sues, claiming that you harmed their president’s reputation.

General liability insurance offers pretty broad liability coverage for your company, but there are risks that it doesn’t cover. For these risks, there are different insurance products you can buy to protect yourself.

Here’s what general liability insurance doesn’t cover:

• Damage to your own property: You need to purchase commercial property insurance to protect your business’s own property against damage or theft.
• Professional negligence: Negligence in providing professional services is covered by professional liability insurance, not general liability insurance. For example, if you’re a software engineer and your services cause a client’s website to crash and lose revenue, then the client could sue you for professional negligence.
• Auto claims: Injuries from the use or operation of a company vehicle are covered under a commercial auto insurance policy.
• Employee injuries: Employees who are hurt on the job should file claims under a workers compensation insurance policy.
• Product defects: Product liability insurance covers manufacturing, design, and marketing defects.
• Lost business income: When businesses have to close shop or scale back operations due to an unexpected event, it can cause a significant loss in income. This is covered by business interruption insurance.

Keep in mind that it’s possible to combine general liability insurance and some of these coverages—like commercial property insurance, business interruption insurance, cyber liability insurance, or professional liability insurance—in a BOP.

The benefit of a business owner’s policy is convenience and affordability. Instead of having multiple insurance policies, potentially from different insurers, you have a single policy from one insurer. Since everything is one package, a BOP also lets you save money on premium costs.

A good insurance provider should understand your business’s specific risks and work with you to customize a general liability insurance policy.

The average cost of general liability insurance for small businesses is $500 per year according to the insurance comparison site Insureon.^[1] When you convert this into a monthly cost, it’s about $42 per month.

According to a survey of 50,000 business owners performed by insurance provider Hiscox, on the other hand, general liability insurance costs typically fall around $30 per month—with only 1% of businesses surveyed paying more than $100 per month.^[2]

For businesses that purchased a new policy through the Progressive Advantage® Business Program in 2019, the cost of general liability insurance was an average of $53 per month.^[3]

Using these examples, you can see that general liability insurance cost varies, but generally falls between $30 and $60 per month. At the end of the day, this is a small cost to pay when you consider that the cost of litigation for a small business can range anywhere from $3,000 to $150,000.^[4]

This being said, however, it’s important to understand that many factors affect the cost of general liability insurance, including:

• Amount of coverage
• Industry
• Business location, revenue, size, and age
• Claims history
• Risk management efforts, such as whether you have alarms on company premises, training programs for your employees, and procedure checklists

Out of these factors, the first three will have the biggest impact on your premium cost.

Mark Applegate, a Farmer’s Insurance agent, says, “Liability insurance cost is usually based on one of three things: square footage, gross sales, or payroll. A low-risk business would usually be based on the square footage. A higher risk business like a retail store on gross sales, and an automotive garage on payroll for example.”

With this in mind, Applegate also mentions the role industry plays in the cost of general liability insurance. He says, “A small attorney’s office would pay around $500 for general liability insurance, but a retail store would probably pay triple that.”

Similarly, money management site, Howmuch.net, breaks up commercial general liability insurance cost by industry, stating that:^[5]

• A hair salon or barbershop will pay about $450 annually.
• A cable or satellite dish installer will pay about $550 annually.
• A small retail store will pay about $750 annually.
• A computer repair service will pay about $400 annually.

As you can see, as Applegate stated, a retail store is likely to pay the highest costs for general liability insurance.

This being said, as we mentioned above, if you know you’ll need other types of business insurance, you can save money on your policy by bundling multiple policies into a BOP. Costs for a business owner’s policy can average around $1,000 per year or about $84 per month.

In addition to considering a BOP, you can also take steps to secure your business, like installing alarms and training employees, for example, to save money on your business insurance.

As we mentioned above, coverage will be another of the factors that have the greatest impact on the cost of your general liability insurance. To this point, as you might imagine, the more coverage you need, the higher the cost of your policy.

So, how much coverage do you really need?

The most common coverage option for general liability insurance is a $1 million / $2 million policy. This means that the insurer will pay up to $1 million for each covered claim, up to a total of $2 million while the policy is valid. This is sufficient coverage for most small businesses, although contractors or others that regularly work on someone else’s property might want to consider higher coverage limits.

Businesses that need substantially higher coverage limits can buy excess liability insurance.

This being said, you don’t want to forget that most general liability policies come with a deductible for certain types of damages. This is an amount that you have to pay out of pocket for each covered incident before the insurance company will pay any benefits—similar to the way health insurance or car insurance works. The higher your deductible, the lower your premium (e.g. monthly or annual cost) will be.

Small businesses have many options to buy general liability insurance. Some business owners opt to get an agent’s or broker’s help, which is a good way to go especially if you have custom insurance needs. For the average small business, however, it’s probably more cost-effective to go directly to a business insurance company that you trust.

Alternatively, insurance comparison sites can play the role of a broker, letting you see how different insurance companies price your business risk. In any case, you’ll want to remember to make sure that any policy you eventually purchase is A-rated or higher by A.M. Best or another respectable credit firm. These ratings impact the insurer’s ability to pay out claims.

If you’re looking for a place to start, you can look into these five general liability insurance providers:

Hiscox is an A-rated insurance company that has decades of experience in business insurance. They sell a variety of business insurance products, including stand-alone general liability coverage and a BOP with several custom coverage options.

Their general liability policy comes standard with electronic data liability coverage, important for IT consultants and others in the tech industry. It covers actions by full-time, part-time, and temporary employees. If you’re interested in insurance from Hiscox, you can either purchase coverage online or go through an independent insurance agent.

Read our full review of Hiscox insurance.

A+ rated Next Insurance is a top pick for buying general liability insurance online. With Next, all you have to do is answer some questions about your business and choose your coverage limits to get an online quote for your general liability policy. If you’re happy with the coverage parameters, you can purchase the policy online.

Once you purchase a policy, you can view your proof of insurance, add additional insureds, and file claims online. The primary downside to Next is that they currently don’t offer a BOP or separate property insurance.

Read our full review of Next Insurance.

CoverWallet offers a different way to shop for insurance. Instead of working directly with an insurance company, you can use CoverWallet to get a general liability quote from several top-rated insurance companies.

To get a quote, you’ll input details about your business’s finances, ownership and employees, and risk management processes.

If you’re not sure about how much coverage you need, CoverWallet has a user-friendly tool that will tell you how much coverage similarly sized businesses in your industry purchased. After you view your quotes, a CoverWallet rep will contact you and help you decide which policy provides the best value.

Nationwide is an A+ rated insurance company that stands out for general liability coverage. In a ranking by J.D. Power^[6], Nationwide beat out 10 other insurance companies, receiving high ratings for customer service, policy offerings, price, and overall satisfaction.

At Nationwide, you can opt for general liability insurance on its own or a BOP. Nationwide offers BOPs to businesses with less than $5 million in annual revenue, and fewer than 100 employees, whereas most insurers cap BOP eligibility at $1 million of annual revenue. Nationwide also offers several optional add-ons to their standard general liability policy to expand coverage.

Though The Hartford, which is an A+ rated insurer, offers several types of small business insurance, their general liability insurance offers especially broad coverage. The Hartford covers standard property damage, bodily injury, personal injury, and medical payment claims.

However, they also cover damage to rented property, which isn’t standard with all insurers. They also have specialty general liability insurance, which covers businesses in higher-risk industries. Examples include manufacturers, wholesaler-distributors, and importers.

At the end of the day, general liability insurance is a must-have for virtually every small business owner. The price of not having general liability insurance is often much higher than the cost of purchasing a policy.

This being said, now that you understand what general liability coverage is and what potential costs look like, you should be well-prepared to shop around and find the liability policy that’s right for your business.