General Liability Insurance: Do I Need It?

Updated: Feb 5

When you set out to start a business, you quickly realize a long list of things you need to set yourself up for success: a strong marketing plan, reliable partners, and top-notch suppliers. But, especially when you’re just getting started, you may not consider another necessity that could make or break all your progress: insurance.

Specifically, generally liability insurance. At this point you may ask, “Do I really need general liability insurance?” And, in a word, yes—you need general liability insurance.

But why? Read on, as we explain all of the benefits of general liability insurance (GL) to businesses of all sizes.

#1 It covers the most common types of accidents.

General liability insurance is a type of insurance policy that covers third-party claims of bodily injury, property damage, and personal and advertising injury. It’s the most essential insurance for any venture, because these are the types of things that happen most often in any business setting. Take these scenarios for example:

  • Bodily injury — You’re a handyman, and you visit clients’ homes to perform repairs. If you leave a tool out and your client trips over it, you could be held liable for their medical expenses and even the consequences of the injury.

  • Property damage — You’re a DJ and you’re playing a big wedding. If your speaker falls and (literally) hits the dance floor, the venue would likely hold you liable for the cost of the repairs.

  • Personal and advertising injury — You’re advertising your pet grooming services with a new website, and you unknowingly use a copyrighted photo that belongs to a famous pet photographer. If the owner of the photo sought action, you could wind up in an expensive legal battle.

Whether it’s a slip, fall, spill, or an honest mistake, in many cases, this one insurance policy can protect you. There are, of course, many other types of insurance to cover claims of negligence, your equipment, workers’ compensation, commercial vehicles, and more, but generally speaking, general liability insurance is part of the foundation for any serious business.

#2 It also covers you even if it’s not your fault!

Let’s go back to the DJ example. Once again, you’re playing a gig at an event venue, but your speaker is pulled down by a rowdy attendee, damaging the venue’s expensive marble flooring. Rather than pursuing action against the attendee, the management of the venue sues you for the repairs, suggesting that the damage wouldn’t have occurred were it not for your equipment.

You may disagree with their line of reasoning and believe you’re not at fault, but even still, you’ll have to hire a lawyer and appear in court, an expensive inconvenience for any small business when time is money. And even when the judge ultimately rules that you’re right, the venue management is wrong, and no settlement is due them, you’d still be out multiple days and many hours of legal fees—without general liability insurance.

General liability insurance covers the legal costs associated with defending a claim, even if the claim is ultimately denied.

#3 It helps you get more work.

We’ve established that general liability insurance has your back in tough situations, but there are also major proactive benefits to getting a GL policy. In many cases, you will be required to have an active GL policy in order to book a gig, secure a client, perform at a venue, or rent a commercial space. You can typically expect for a property manager or compliance coordinator to send you a list of insurance requirements, and you’d then provide a Certificate of Insurance that reflects those requirements. Your Certificate of Insurance is a document that proves to any client that you have an active policy and you’re ready to work.

Most clients or organizations with whom you work will have their own minimum insurance requirements, so it’s important that your policy meets those minimums in order for you to be approved for the project. Bidding on any service—carpentry, lawn care, installation, etc.—is a competitive process. If other professionals in your line of work can come better prepared with all of the prerequisites to start work immediately, you likely just lost the job. Maintaining an active GL policy anytime you’re performing your services will put you on par with much larger businesses with far more experience.

#4 It helps grow trust in your brand.

General liability insurance increases your likelihood of getting hired, but it’s also a badge of legitimacy for your business. Just like those more obvious necessities we’ve mentioned—like strong marketing materials and quality products—purchasing insurance shows your customer that you’ve made a meaningful investment in your business in order to provide a quality service and earn their trust.

Considering that GL covers all of the most common types of third-party accidents, maintaining an active policy gives your customers the assurance that if something happens while you’re interacting, they will be able to file a claim under your insurance. It’s a level of security that customers have come to expect from the small businesses they employ. Especially as review and referral sites like NextDoor and Angie’s List have grown in popularity, it’s clear that customers are looking for services they can trust, becoming increasingly more aware of the benefits of insurance when they choose to hire someone.

General liability insurance makes up one third of a classification that many businesses seek in order to be considered legit: “licensed, bonded, and insured.” “Licensed” refers to your business having an official license of operation from your state or city, and this is usually your first step once you’ve pulled together the necessary resources to open for business. Second, “bonded” refers to a business holding a surety bond. A surety bond is another form of a guarantee to your customer that, should an incident occur for which they’d need payment for damages, your business has access to those “rainy day” funds. While insurance is meant to protect you from having to pay for claims and damages out of pocket, a surety bond is more so meant to protect the financial interests of your customers. And lastly, “insured” most often refers to a business that has at least general liability insurance, but depending on the scope of your services, other policies may be recommended.

In short, the best, most trustworthy small businesses are licensed, bonded, and insured.

#5 It’s easy and affordable to get.

Now that you understand all of the proactive and reactive benefits of general liability insurance, you’re probably pretty convinced that you need it. Thankfully, it’s easy to get!

There are lots of options for general liability insurance from many different commercial insurance providers. It’s important that you choose limits and endorsements that reflect the nature of your business. Ask yourself: how much risk do you deal with day-to-day? Every job includes some inherent level of risk, but obviously some are more riskier than others. Depending on your industry or the types of venues in which you usually operate, you may want to opt for a higher coverage limit to meet industry standards and stay ready for business.

There are a number of things that affect the price of your insurance policy, namely the following:

  • The area in which you operate — If you’re working in an urban area, your premium may be increased.

  • The kind of work you’re doing — The “activities” you’re performing also give insurers a good picture of the typical claims made in that line of work, so they can price your policy accordingly.

  • How many people you employ — Each person added to your crew means more opportunities for a mishap.

From there, you can typically select among several coverage limits, which also affect the total cost. After you purchase a policy, you’ll receive a Certificate of Insurance that includes all of the details of your policy, so you can send it to anyone who needs proof that you’re insured. In many cases, the person hiring you may want to be listed as an “Additional Insured” on your policy. This means they’re named as connected to your policy to guarantee that their interests are protected if an incident occurs while you’re working for them. Luckily, in many cases, this is also done easily and at no added cost.

To get an idea for your level of occupational risk and the cost of GL for your business, get a quote and see how affordable it can be.

General liability insurance summarized

General liability insurance has virtually limitless value, whether you’re a one-person operation in your garage or a large team servicing clients constantly. As we’ve seen, GL covers the most common types of accidents (even if they’re ultimately not your fault), it can help you get more work, and it makes up a significant portion of the legitimacy of any organization.

And finally, GL is easy and affordable to get, so the benefits far outweigh the cost for any business that wants to get serious about providing great services and building customer relationships.

Guest Authored by Terri Hitchcock, JD at Thimble

Terri is currently the Chief Insurance Executive at Thimble Insurance, and was previously a Principal and Director of the product design practice area with Perr & Knight, a major insurance consulting services firm. Her areas of expertise are reinsurance and insurance operations, contracts, compliance, product development, and underwriting, having provided such services to clients in the industry over the past 30 years.Terri graduated with a B.A. in English and French from the College of the Holy Cross. She received her JD from the University of Maryland School of Law.

DISCLAIMER: The information provided through Fighting For Small is intended to provide general information only and should not be considered legal, tax, investment, financial, or other advice. You should seek professional advice before making any decision that could affect your business.

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