What Is General Liability Insurance (GLI) and Who Needs It?

You’ve just signed your first major client contract. The revenue will be transformative for your small business, pushing you into a new tier of growth. You’re excited, energized, ready to deliver exceptional work.

Then you see it—buried in the contract fine print on page 8: “Contractor shall maintain General Liability Insurance with minimum limits of $1,000,000 per occurrence and $2,000,000 aggregate.”

Your excitement turns to confusion, then mild panic. What is General Liability Insurance? Do I really need a million dollars in coverage? How much will this cost? Can I even get it?

Or perhaps you’re in a different situation: You run a small retail shop, and a customer slips on your freshly mopped floor. They’re injured, angry, and their attorney is sending threatening letters about a lawsuit. Without insurance, you’re facing legal fees that could exceed $50,000—potentially bankrupting your business—even if you ultimately win the case.

These scenarios play out thousands of times every day across America. General Liability Insurance (GLI) is the financial safety net that protects businesses from the lawsuits, claims, and unexpected liabilities that can destroy years of hard work in a matter of weeks.

Yet despite being one of the most fundamental forms of business insurance, GLI remains widely misunderstood. Many business owners don’t know what it covers, how much they need, or when to buy it. Others skip it entirely—sometimes without realizing they’re one accident away from financial catastrophe.

This comprehensive guide will demystify General Liability Insurance, explaining exactly what it is, what it covers, who needs it, how much it costs, and how to choose the right coverage for your specific business.

What Is General Liability Insurance? (Complete Definition)

General Liability Insurance (GLI), sometimes called Commercial General Liability (CGL), is a foundational business insurance policy that protects your company from financial losses caused by:

• Third-party bodily injuries
• Third-party property damage
• Personal and advertising injury claims
• Medical payments for incidents on your premises
• Legal defense costs

The Core Concept: GLI covers liability—your legal responsibility to compensate others for harm your business causes. It’s the business equivalent of personal liability coverage on a homeowners policy, but designed for commercial exposures.

Why It’s Called “General” Liability

The term “general” distinguishes it from specialized liability coverages:

General Liability: Covers common business risks (injuries, property damage, advertising issues)

Professional Liability: Covers errors, omissions, and negligence in professional services

Product Liability: Often included in GL, covers harm caused by products you manufacture or sell

Cyber Liability: Covers data breaches and cyberattacks

Employment Practices Liability: Covers discrimination, harassment, wrongful termination claims

GLI is “general” because it addresses the everyday risks nearly every business faces, regardless of industry.

How General Liability Insurance Works

The Basic Structure:

1. You purchase a policy with specific coverage limits (e.g., $1M per occurrence, $2M aggregate)
2. You pay a premium (typically monthly or annually) based on your risk factors
3. If a covered claim occurs, you report it to your insurer
4. The insurer investigates and determines coverage
5. The insurer provides defense (hires attorneys, manages the claim)
6. The insurer pays settlements or judgments up to your policy limits
7. You may pay a deductible (though many GL policies have no deductible for liability claims)

Key Point: The insurer provides both defense and indemnity. Even if a claim is frivolous, your insurer defends you. Legal fees alone can exceed $50,000-$100,000 for a lawsuit that goes to trial.

What Does General Liability Insurance Cover? (Detailed Breakdown)

GLI policies typically include three main coverage sections, often called “Coverage A,” “Coverage B,” and “Coverage C.”

Coverage A: Bodily Injury and Property Damage Liability

This is the core of your GLI policy, covering liability for bodily injury or property damage caused by your business operations or occurring on your premises.

Bodily Injury Coverage

What It Covers:

• Medical expenses for injured parties
• Lost wages if they can’t work
• Pain and suffering damages
• Rehabilitation costs
• Wrongful death claims
• Legal defense costs
• Court judgments or settlements

Common Bodily Injury Scenarios:

Slip and Fall Accidents: A customer slips on a wet floor in your store, falls, and breaks their hip. They sue for $150,000 in medical bills, lost wages, and pain and suffering.

• GLI Response: Your insurer provides legal defense and pays the settlement (up to your limits)

Product-Related Injuries: You run a bakery. A customer bites into a cupcake and breaks a tooth on a piece of shell you didn’t remove from the batter. They sue for dental costs and pain.

• GLI Response: Covered under product liability (part of GLI)

Injuries During Service Calls: Your employee is installing flooring at a customer’s home. The customer trips over materials left in a walkway and injures their back.

• GLI Response: Covered as bodily injury during your operations

Vendor Injuries at Your Location: A delivery driver slips on ice in your parking lot and breaks their arm.

• GLI Response: Covered as premises liability

Event-Related Injuries: You host a promotional event. A display falls on an attendee, causing a concussion.

• GLI Response: Covered as bodily injury during your business activities

Property Damage Coverage

What It Covers:

• Damage to others’ buildings or structures
• Damage to others’ equipment or belongings
• Loss of use of damaged property
• Legal defense and settlement costs

Common Property Damage Scenarios:

Damage During Service Work: Your cleaning crew accidentally breaks a client’s expensive vase while dusting.

• GLI Response: Covers replacement value

Fire Damage: Your food truck catches fire, and the flames spread to an adjacent building.

• GLI Response: Covers damage to the building (not your own food truck—that requires commercial property insurance)

Water Damage: Your plumber accidentally breaks a pipe during a repair, flooding your client’s basement and damaging their finished space.

• GLI Response: Covers water damage and repairs

Vehicle Causing Damage (Non-Auto Liability): You’re moving equipment in a client’s facility with a hand truck. You accidentally roll over their foot and damage their equipment.

• GLI Response: Covered because it’s not a motor vehicle accident (which would require commercial auto insurance)

Damage to Rented Premises: You lease office space. An employee accidentally starts a small fire that damages the landlord’s property.

• GLI Response: Covered under “damage to rented premises” provision (typically limited to $100,000-$300,000 unless increased)

Coverage B: Personal and Advertising Injury

This coverage addresses harm to reputation, privacy, or intellectual property through your business communications and advertising.

Personal Injury Coverage

What It Covers:

• Libel (written defamation)
• Slander (spoken defamation)
• False arrest, detention, or imprisonment
• Malicious prosecution
• Wrongful eviction
• Invasion of privacy
• Violation of right of privacy

Common Personal Injury Scenarios:

Defamation Claims: You post a negative review online about a supplier, claiming they’re fraudulent. The supplier sues for libel, claiming your statements are false and damaged their business.

• GLI Response: Provides defense; covers settlement if you’re found liable

False Arrest: You run a retail store. Loss prevention staff detains a customer suspected of shoplifting. The customer was innocent and sues for false imprisonment.

• GLI Response: Covered under personal injury

Invasion of Privacy: Your marketing team uses a customer’s photo in advertising without permission. The customer sues for invasion of privacy and unauthorized use of likeness.

• GLI Response: Covered under personal injury

Advertising Injury Coverage

What It Covers:

• Copyright infringement in your advertising
• Trademark infringement in your advertising
• Misappropriation of advertising ideas or style
• Infringement of title or slogan

Common Advertising Injury Scenarios:

Copyright Infringement: Your graphic designer uses a stock photo in your website without proper licensing. The photographer sues for copyright violation.

• GLI Response: Covered as advertising injury

Trademark Issues: Your company slogan is too similar to a competitor’s registered trademark. They sue for trademark infringement.

• GLI Response: Covered if it occurred in your advertising

Stolen Marketing Concepts: A competitor claims you copied their unique advertising campaign concept.

• GLI Response: May be covered depending on circumstances

Important Limitations:

• Only covers advertising-related infringement (not core product/service infringement)
• May not cover infringement you knew about before the policy period
• Intellectual property that’s core to your business may need separate IP insurance

Coverage C: Medical Payments (Med Pay)

Medical Payments coverage is a “no-fault” provision that pays for minor medical expenses of third parties injured on your premises or by your operations, regardless of who was legally responsible.

What It Covers:

• Emergency room treatment
• Ambulance costs
• Doctor visits related to the injury
• X-rays and diagnostic tests
• Dental work (if injury-related)
• First aid

Typical Limits: $5,000-$10,000 per person

Why It Exists: Med Pay serves two purposes:

1. Goodwill: Quickly pay minor medical costs, often preventing lawsuits
2. Efficiency: Resolves small claims without lengthy liability determinations

Common Med Pay Scenarios:

Minor Trip and Fall: A client trips on a rug in your office and sprains their ankle. Medical costs are $800.

• Med Pay Response: Pays the $800 immediately, no liability determination needed

Cut on Equipment: A customer tours your workshop and cuts their hand on a sharp edge. Emergency room visit costs $500.

• Med Pay Response: Pays the bill as a goodwill gesture

Key Limitation: Med Pay does NOT cover your employees (that’s workers’ compensation) or you/your family members.

What General Liability Insurance Does NOT Cover

Understanding exclusions is as important as understanding coverage.

1. Damage to Your Own Property

Excluded: Your building, equipment, inventory, and business property

Why: GLI covers liability to others, not your own property

What You Need: Commercial Property Insurance or Business Owner’s Policy (BOP)

Example: A fire damages your retail store, destroying inventory and fixtures.

• GLI doesn’t cover this
• You need commercial property insurance

2. Employee Injuries

Excluded: Any injury to your employees during work

Why: This is exclusively covered by workers’ compensation insurance

What You Need: Workers’ Compensation Insurance (required in most states)

Example: Your employee slips on ice in your parking lot and breaks a leg.

• GLI doesn’t cover this (employee, not third party)
• Workers’ compensation covers it

3. Professional Errors and Negligence

Excluded: Mistakes, errors, omissions, or negligence in professional services

Why: These require specialized professional liability coverage

What You Need: Professional Liability Insurance (also called Errors & Omissions or E&O Insurance)

Example: You’re a consultant. Your advice leads to a client’s financial loss. They sue for $200,000.

• GLI doesn’t cover professional negligence
• You need Professional Liability/E&O Insurance

Professions requiring E&O:

• Consultants and advisors
• Accountants and bookkeepers
• Architects and engineers
• Real estate professionals
• Insurance agents
• IT service providers
• Lawyers, doctors, therapists (Professional Liability)
• Any professional providing advice or specialized services

4. Auto Accidents Involving Business Vehicles

Excluded: Accidents involving cars, trucks, vans, or other motor vehicles

Why: Requires separate commercial auto insurance

What You Need: Commercial Auto Insurance

Example: Your employee causes a car accident while driving to a client site.

• GLI doesn’t cover this
• Commercial auto insurance covers it

Gray Area: Small motorized equipment (forklifts, floor buffers, hand trucks used on premises) may be covered by GLI, but true motor vehicles are excluded.

5. Intentional Acts, Fraud, and Criminal Behavior

Excluded: Any deliberate wrongdoing, fraud, or criminal acts

Why: Insurance doesn’t cover illegal or intentional harm

Example: You deliberately damage a competitor’s property.

• GLI doesn’t cover this (intentional act)

6. Cyber Incidents and Data Breaches

Excluded: Data breaches, cyberattacks, ransomware, privacy violations

Why: Requires specialized cyber liability insurance

What You Need: Cyber Liability Insurance

Example: Hackers breach your customer database, exposing 10,000 credit card numbers. Customers sue.

• GLI doesn’t cover this
• Cyber liability insurance covers it

7. Employment-Related Claims

Excluded: Discrimination, harassment, wrongful termination, retaliation claims by employees

Why: Requires Employment Practices Liability Insurance (EPLI)

What You Need: EPLI coverage

Example: A terminated employee sues for wrongful termination and discrimination.

• GLI doesn’t cover employment disputes
• EPLI covers it

8. Pollution and Environmental Damage

Excluded: Pollution, contamination, environmental cleanup

Why: Requires specialized pollution liability coverage

What You Need: Pollution Liability Insurance or Environmental Impairment Liability

Example: Your dry cleaning business’s chemicals leak into the soil, requiring environmental cleanup.

• GLI doesn’t cover pollution
• Pollution liability insurance covers it

9. Aircraft and Watercraft Liability

Excluded: Liability from operating aircraft or large watercraft

Why: These require specialized aviation or marine insurance

Example: You own a boat tour business. A passenger is injured on your boat.

• GLI doesn’t cover watercraft
• Marine liability insurance covers it

10. Contractual Liability (Limited)

Excluded or Limited: Liability you assume under contracts beyond what you’d normally have

Example: You sign a contract assuming 100% liability for any incidents, even those not your fault.

• GLI may not fully cover contractual liability assumptions
• Requires careful review of contract language

Who Needs General Liability Insurance?

The short answer: Nearly every business.

The longer answer depends on your specific situation, but GLI is essential for:

Small Businesses and Startups

Why You Need It:

• Protection during vulnerable early years
• Required by many contracts and leases
• Affordable even on startup budgets
• Builds credibility with clients

Who Specifically:

• Home-based businesses (even if you think you’re covered by homeowners insurance—you’re not)
• Solopreneurs and sole proprietors
• New LLCs and corporations
• Bootstrapped startups with limited capital

Reality Check: You might think, “I’m too small to get sued.” Wrong. Small businesses are sued regularly. Slip-and-fall claims don’t care about your company size—they happen to businesses with one employee just as easily as those with 100.

Contractors and Construction Trades

Why You Need It:

• Work in clients’ homes and businesses (high property damage risk)
• Physical labor creates injury risks
• Clients and general contractors almost always require it
• Some states require it for licensing

Who Specifically:

• General contractors
• Plumbers and electricians
• HVAC technicians
• Painters and drywall installers
• Roofers
• Landscapers
• Carpenters and cabinet makers
• Flooring installers
• Any handyman or renovation work

Typical Coverage Required: $1 million per occurrence, $2 million aggregate minimum (many general contractors require $2 million/$2 million or higher)

Retail Stores and Restaurants

Why You Need It:

• High foot traffic = high slip/fall risk
• Product liability exposure
• Customer interactions create multiple liability exposures
• Landlords require it

Who Specifically:

• Clothing and gift shops
• Restaurants, cafes, and bars
• Grocery and convenience stores
• Specialty retail (sports equipment, electronics, books)
• Hair salons and barbershops
• Gyms and fitness centers
• Any business with a physical customer location

Common Claims: Slip and falls, food poisoning allegations, customer injuries, property damage

Service-Based Businesses

Why You Need It:

• Work at client locations
• Client-required coverage
• Risk of property damage during services
• Some risk even without physical presence (virtual services can face advertising injury claims)

Who Specifically:

• Cleaning services
• Event planners and coordinators
• Marketing and advertising agencies
• Real estate agents
• Property managers
• Photographers and videographers
• Personal trainers
• Pet sitters and dog walkers
• Tutors and educators

Professionals and Consultants

Why You Need It:

• Client requirements
• Office or meeting space liability
• Personal injury claims (libel, slander)
• Even virtual businesses face risks

Who Specifically:

• Business consultants
• Financial planners (also need E&O)
• HR consultants
• IT consultants (also need E&O)
• Coaches and trainers
• Any professional services

Note: Most professionals need BOTH General Liability AND Professional Liability (E&O). GLI covers premises and advertising issues; E&O covers professional mistakes.

Online and E-Commerce Businesses

Why You Need It:

• Advertising injury claims (copyright, trademark)
• Product liability (if you sell physical products)
• May be required by payment processors or platforms
• Protection for any physical business activities (warehousing, events, partnerships)

Who Specifically:

• Amazon FBA sellers
• Shopify and e-commerce stores
• Dropshipping businesses
• Digital marketers
• Content creators (if selling products or services)
• SaaS companies (may also need Tech E&O)

Common Misconception: “I’m online-only, I don’t need insurance.” Wrong. Advertising injury claims are common, and many platforms/partners require coverage.

Landlords and Property Owners

Why You Need It:

• Premises liability for common areas
• Required by commercial mortgage lenders
• Protection against tenant or visitor injuries
• Property damage to tenant spaces

Who Specifically:

• Commercial property landlords
• Residential rental property owners
• Mixed-use property owners
• Property management companies

Note: Tenants should have their own GLI; landlords should require it. But landlords also need their own coverage.

Freelancers and Independent Contractors

Why You Need It:

• Many clients require it in contracts
• Protection is affordable (often $30-50/month)
• Professionalism and credibility
• Protection if you meet clients in person or visit their locations

Who Specifically:

• Freelance writers and designers (for advertising injury)
• Independent IT contractors
• Virtual assistants
• Freelance photographers
• Any 1099 contractor working with corporate clients

What Clients Often Require: Minimum $1 million coverage with the client named as “additional insured”

Understanding Coverage Limits: How Much Do You Need?

GLI policies have several types of limits that work together.

The Limit Structure

Per Occurrence Limit: Maximum paid for any single claim or incident

General Aggregate Limit: Maximum paid for all claims during the policy period (typically one year)

Products-Completed Operations Aggregate: Maximum for product liability and completed work claims

Personal and Advertising Injury Limit: Maximum for personal/advertising injury claims (often same as per occurrence)

Damage to Rented Premises Limit: Maximum for damage to property you rent (typically $100,000-$300,000)

Medical Expense Limit: Maximum for medical payments coverage per person (typically $5,000-$10,000)

Common Coverage Limit Combinations

$1,000,000 / $2,000,000 (Most Common):

• $1M per occurrence
• $2M general aggregate
• This is the minimum most contracts require
• Adequate for most small businesses

$2,000,000 / $4,000,000 (Higher Protection):

• $2M per occurrence
• $4M general aggregate
• Better for businesses with higher risk
• Required by some large clients or projects

$500,000 / $1,000,000 (Lower Limits):

• Available but becoming less common
• Often insufficient for contract requirements
• May be adequate for very low-risk businesses with minimal exposure

How to Determine Your Needed Coverage

Consider These Factors:

1. Contract Requirements: What do your clients and contracts require? This often determines your minimum.

2. Industry Standards: What do similar businesses in your industry carry? Match or exceed industry norms.

3. Your Assets: What do you have to protect? Higher net worth businesses need higher limits.

4. Your Risk Exposure:

• High customer traffic? Higher limits.
• Work in clients’ expensive homes? Higher limits.
• Sell products that could cause harm? Higher limits.
• Office-only, low interaction? Standard limits may suffice.

5. Your Risk Tolerance: How much risk can you accept? Conservative approach = higher limits.

6. Cost-Benefit Analysis: The difference between $1M and $2M coverage is often only $10-$20/month. Higher limits are usually worth it.

Umbrella and Excess Liability

For businesses needing more than $2M in coverage, consider:

Umbrella Liability:

• Sits above your primary GLI
• Provides additional limits (typically $1M-$5M more)
• May broaden coverage beyond underlying policy
• Cost: $500-$1,500/year for $1M excess

Example:

• Primary GLI: $1M per occurrence, $2M aggregate
• Umbrella: $5M
• Total protection: $6M per occurrence, $7M aggregate

How Much Does General Liability Insurance Cost?

Cost varies significantly based on multiple factors, but here’s what to expect.

Average Costs by Business Type

Low-Risk Office Businesses:

• Cost: $400-$800/year ($35-$70/month)
• Examples: Consultants, office-based professionals, virtual businesses
• Why Less Expensive: Minimal customer interaction, low injury risk, office setting

Moderate-Risk Service Businesses:

• Cost: $800-$1,500/year ($70-$125/month)
• Examples: Retail stores, service providers, small contractors
• Why Moderate: Some customer interaction, moderate injury risk, some property exposure

Higher-Risk Businesses:

• Cost: $1,500-$3,000+/year ($125-$250+/month)
• Examples: Contractors, restaurants, manufacturers, gyms
• Why More Expensive: High injury risk, significant property damage exposure, product liability

Very High-Risk Industries:

• Cost: $3,000-$10,000+/year
• Examples: Roofing contractors, amusement operators, some manufacturing
• Why Very Expensive: Exceptionally high claim frequency and severity

Factors That Affect Your Premium

1. Industry and Business Type: Risk level of your operations is the #1 factor. Roofing contractors pay more than consultants.

2. Annual Revenue/Sales: Higher revenue typically means more activity and exposure, thus higher premiums.

• $100,000 revenue: Base rate
• $500,000 revenue: 2-3× base rate
• $1,000,000 revenue: 4-5× base rate

3. Number of Employees: More employees = more activity = higher premiums

• Sole proprietor: Lowest rate
• 1-5 employees: Moderate increase
• 10+ employees: Significant increase
• Rates are often calculated per employee

4. Location:

• Urban areas: Higher rates (more lawsuits, higher jury awards)
• Rural areas: Lower rates
• States with high litigation rates: Higher premiums (Florida, Louisiana, California)
• States with tort reform: Lower premiums (Texas, some others)

5. Claims History:

• No claims: Best rates
• 1-2 claims: 20-40% increase
• Multiple claims: 50-100%+ increase or difficulty finding coverage

6. Coverage Limits:

• $500K/$1M: Base rate
• $1M/$2M: 20-30% higher
• $2M/$4M: 40-60% higher
• Umbrella: Additional cost

7. Deductible:

• $0 deductible: Standard rate
• $1,000 deductible: 5-10% savings
• $2,500-$5,000 deductible: 10-20% savings (Note: Many GLI policies have no deductible for liability claims)

8. Business Operations:

• Work in customer homes: Higher rates
• Only office work: Lower rates
• Dangerous equipment: Higher rates
• Subcontractors: Significantly higher rates

9. Coverage Enhancements: Adding coverages increases premium:

• Hired/non-owned auto: +$200-500/year
• Liquor liability: +$500-2,000+/year
• Additional insureds: +$50-100 each or free depending on policy

Example Premium Calculations

Example 1: Freelance Graphic Designer:

• Revenue: $75,000
• Employees: 0 (sole proprietor)
• Location: Denver, CO
• Operations: Home office, occasional client meetings
• Limits: $1M/$2M
• Estimated Cost: $400-$600/year ($35-$50/month)

Example 2: Small Retail Boutique:

• Revenue: $300,000
• Employees: 3
• Location: Austin, TX
• Operations: Retail storefront, high foot traffic
• Limits: $1M/$2M
• Estimated Cost: $1,200-$1,800/year ($100-$150/month)

Example 3: General Contractor:

• Revenue: $500,000
• Employees: 5
• Location: Miami, FL
• Operations: Residential renovations, some subcontracting
• Limits: $2M/$4M
• Estimated Cost: $3,500-$5,500/year ($290-$460/month)

Example 4: Restaurant:

• Revenue: $800,000
• Employees: 15
• Location: San Francisco, CA
• Operations: Full-service restaurant with alcohol
• Limits: $1M/$2M plus liquor liability
• Estimated Cost: $2,500-$4,000/year ($210-$335/month)

Real-World GLI Claim Examples

Understanding actual claims helps illustrate why GLI matters.

Case Study 1: The Slip and Fall at the Coffee Shop

Business: Small coffee shop, 3 employees, $250,000 annual revenue

Incident: Customer spilled coffee on floor near counter. Before staff could clean it, another customer slipped in the spill, fell, and fractured their wrist.

Claim:

• Medical bills: $15,000
• Lost wages (6 weeks): $7,000
• Pain and suffering: $30,000
• Legal fees: $25,000
• Total claim: $77,000

GLI Response:

• Policy limits: $1M/$2M
• Deductible: $0
• Insurer paid: $77,000
• Business paid: $0 (except continued premiums)

Without GLI: Business would have paid $77,000 out of pocket, potentially forcing closure.

Premium Impact: Annual premium increased from $1,200 to $1,800 at renewal (50% increase).

Case Study 2: The Contractor’s Property Damage

Business: Painting contractor, 2 employees, $180,000 annual revenue

Incident: While painting interior walls, contractor’s employee knocked over a paint bucket, which spilled onto the client’s expensive Persian rug. Additionally, some paint splattered on antique furniture.

Claim:

• Rug cleaning (unsuccessful): $500
• Rug replacement: $12,000
• Furniture restoration: $4,000
• Total claim: $16,500

GLI Response:

• Policy limits: $1M/$2M
• Deductible: $0
• Insurer paid: $16,500
• Business paid: $0

Without GLI: $16,500 out of pocket, potentially bankrupting the small business.

Lesson: Even careful contractors face accidents. GLI protected the business’s survival.

Case Study 3: The Defamation Lawsuit

Business: Marketing agency, 8 employees, $600,000 annual revenue

Incident: Agency created a competitive advertising campaign for a client that a competitor claimed was defamatory and contained false statements about their business.

Claim:

• Defamation and business harm
• Competitor sued for $200,000
• Legal defense costs: $85,000
• Settlement: $50,000 plus legal costs

GLI Response:

• Personal and advertising injury coverage applied
• Insurer paid: $135,000 (legal costs + settlement)
• Business paid: $0

Without GLI: $135,000 would have devastated the agency’s finances.

Lesson: Even creative work carries liability. Advertising injury coverage is crucial for marketing businesses.

Case Study 4: The Product Liability Claim

Business: Small manufacturer of children’s toys, $400,000 annual revenue

Incident: A small part detached from a toy, creating a choking hazard. A child was injured (not seriously, but required medical attention). Parents sued.

Claim:

• Medical bills: $3,000
• Emotional distress: $25,000
• Product recall and testing: $15,000
• Legal defense: $40,000
• Total costs: $83,000

GLI Response:

• Products-completed operations coverage applied
• Insurer paid: $83,000
• Business paid: $0

Product recall costs: NOT covered by GLI (requires separate product recall insurance), but legal defense and damages were covered.

Lesson: Product liability is included in GLI but has limits. High-risk products may need additional coverage.

Case Study 5: The Claim That Got Denied

Business: Freelance web developer, $100,000 annual revenue

Incident: Developer built a website with a major error that caused the client’s e-commerce site to crash during Black Friday weekend, costing them an estimated $50,000 in lost sales.

Claim: Client sued for $50,000 in damages plus legal costs.

GLI Response: CLAIM DENIED

Why: This is professional liability (errors and omissions), NOT general liability. The developer’s mistake in providing professional services is not covered by GLI.

Lesson: Many professionals need BOTH GLI and E&O insurance. This developer needed Professional Liability insurance, which they didn’t have.

Outcome: Developer paid $50,000 settlement plus $20,000 in legal fees out of pocket. This mistake cost more than 10 years of insurance premiums would have.

How to Buy General Liability Insurance: Step-by-Step Guide

Step 1: Assess Your Needs

Questions to Answer:

• What does my industry typically require?
• What do my contracts require?
• What are my primary liability exposures?
• What’s my budget?
• Do I need additional coverage beyond GLI?

Step 2: Gather Information

You’ll Need:

• Business name and structure (LLC, Corp, Sole Prop)
• Employer Identification Number (EIN) or SSN
• Business address
• Annual revenue (estimated if new)
• Number of employees
• Description of operations
• Whether you use subcontractors
• Claims history (if any)

Step 3: Choose How to Shop

Option 1: Direct from Insurers:

• Go directly to insurance companies’ websites
• Good if you know which insurers serve your industry
• Examples: Nationwide, The Hartford, Travelers

Option 2: Through an Insurance Agent/Broker:

• Agent represents one company; broker represents multiple
• Agents shop and compare for you
• Provide personalized advice
• Help with claims later
• Recommended for most businesses

Option 3: Online Insurance Marketplaces:

• Websites that compare multiple insurers
• Examples: Insureon, CoverWallet, Simply Business
• Fast quotes
• Good for straightforward businesses
• May lack personal service

Step 4: Compare Quotes

Get at least 3 quotes comparing:

• Premium costs
• Coverage limits
• Deductibles
• Exclusions and limitations
• Insurer financial strength (A.M. Best rating)
• Additional coverages included

Don’t choose on price alone: Cheapest isn’t always best. Consider coverage breadth, insurer reputation, and claim service quality.

Step 5: Review the Policy Before Buying

Check:

• Coverage limits match your needs
• Business operations are correctly described
• No unexpected exclusions
• Additional insureds (if needed) are listed
• Deductible is acceptable
• Premium payment schedule works for your budget

Step 6: Purchase and Maintain Coverage

After Buying:

• Keep proof of insurance accessible
• Provide certificates of insurance to clients as needed
• Set calendar reminders for renewal
• Review coverage annually
• Report any claims promptly
• Update policy if business changes significantly

Business Owner’s Policy (BOP): GLI + Property Insurance

Many small businesses should consider a Business Owner’s Policy (BOP) instead of standalone GLI.

What Is a BOP?

A BOP bundles:

• General Liability Insurance
• Commercial Property Insurance
• Business Interruption Insurance

Benefits:

• Typically 20-30% cheaper than buying policies separately
• Simplified coverage (one policy, one renewal)
• Designed for small to medium businesses
• Covers both liability and property

Who Should Get a BOP:

• Retail stores and restaurants
• Office-based businesses
• Small contractors
• Service businesses with equipment and inventory
• Any business needing both liability and property coverage

Who Shouldn’t Get a BOP:

• Very high-risk industries (may need custom coverage)
• Large businesses (over 100 employees or $10M+ revenue)
• Businesses with unique risks

Cost: $1,000-$3,000/year for typical small business (vs. $1,500-$4,000 for separate policies)

Additional Coverage to Consider

Professional Liability Insurance (E&O)

Who Needs It: Any business providing advice, professional services, or specialized expertise

Cost: $500-$3,000/year

Coverage: Errors, omissions, negligence in professional services

Commercial Auto Insurance

Who Needs It: Any business using vehicles for business purposes

Cost: $1,200-$2,500/year per vehicle

Coverage: Auto accidents involving business vehicles

Workers’ Compensation Insurance

Who Needs It: Any business with employees (required in most states)

Cost: Varies widely by industry (typically $0.50-$5.00 per $100 of payroll)

Coverage: Employee injuries and illnesses

Cyber Liability Insurance

Who Needs It: Any business handling customer data, especially online businesses

Cost: $1,000-$7,500/year

Coverage: Data breaches, cyberattacks, privacy violations

Commercial Property Insurance

Who Needs It: Any business with physical property (equipment, inventory, buildings)

Cost: $500-$3,000/year

Coverage: Damage to business property from fire, theft, vandalism, weather

Common Mistakes When Buying GLI

Mistake #1: Waiting Until You Need It

The Error: “I’ll get insurance when I land my first big client.”

The Problem: You can’t buy insurance retroactively. If something happens before you’re insured, you’re not covered.

The Fix: Buy insurance BEFORE you need it. As soon as you start doing business.

Mistake #2: Choosing Coverage Based on Price Alone

The Error: Buying the cheapest policy without reviewing coverage.

The Problem: Cheap policies often have limited coverage, high exclusions, or low limits.

The Fix: Compare coverage quality, not just price. Slightly more expensive but comprehensive coverage is usually worth it.

Mistake #3: Not Understanding What’s Excluded

The Error: Assuming GLI covers everything.

The Problem: Discovering too late that you needed E&O, cyber, or other specialized coverage.

The Fix: Read your policy. Understand exclusions. Fill gaps with additional coverage.

Mistake #4: Inadequate Coverage Limits

The Error: Buying $500K coverage when contracts require $1M.

The Problem: Can’t fulfill contract requirements; insufficient protection for serious claims.

The Fix: Match or exceed industry standards and contract requirements. $1M/$2M is standard for good reason.

Mistake #5: Not Updating Coverage as Business Grows

The Error: Keeping the same $300K revenue policy when revenue hits $1M.

The Problem: Underinsured for current risk level. Claims may not be fully covered.

The Fix: Review and update coverage annually, especially when revenue or operations change significantly.

Mistake #6: Assuming Home-Based Business Is Covered by Homeowners Insurance

The Error: “I work from home, so my homeowners policy covers me.”

The Problem: Homeowners policies exclude business activities. You have zero business coverage.

The Fix: Buy GLI even for home-based businesses. It’s affordable and essential.

Mistake #7: Not Getting “Additional Insured” Endorsements

The Error: Contracts require you to name clients as additional insureds, but you forget or don’t understand.

The Problem: Contract breach; potential loss of client or legal issues.

The Fix: Work with your agent to add additional insureds as contracts require. Usually free or low cost.

Understanding Certificates of Insurance

You’ll frequently need to provide Certificates of Insurance (COI) to clients, landlords, or partners.

What Is a Certificate of Insurance?

A COI is a one-page document summarizing your insurance coverage. It proves you have insurance and shows key details:

• Insurer name
• Policy numbers
• Coverage types
• Coverage limits
• Policy effective dates
• Named insureds
• Additional insureds (if any)

When You Need a COI

• Signing client contracts
• Leasing commercial space
• Bidding on projects
• Partnering with other businesses
• Selling through certain platforms (Amazon, some craft fairs)

How to Get a COI

1. Contact your insurance agent or insurer
2. Provide the certificate holder’s information (who needs the certificate)
3. Specify if they need to be listed as “additional insured”
4. Agent produces COI (usually within 24 hours, often immediately)
5. You provide COI to the requesting party

Cost: Usually free (insurance companies provide certificates as part of your policy)

Common COI Requirements

Additional Insured: Extends your liability coverage to protect the named party

Waiver of Subrogation: Prevents your insurer from suing the certificate holder to recover claim costs

Primary and Non-Contributory: Makes your policy the primary payer before other insurance

Certificate Holder: The entity receiving the certificate (doesn’t necessarily get coverage, just proof you have it)

State-Specific Requirements and Regulations

Insurance is regulated at the state level, creating some variations.

States Requiring GLI for Specific Industries

Some states require GLI for certain licensed professions:

Construction and Contractors:

• Many states require proof of GLI for contractor licensing
• Minimums vary ($300K-$1M typically)

Real Estate Professionals:

• Some states require E&O and/or GLI for broker licenses

Auto Repair Shops:

• Several states require minimum liability coverage

Check Your State Requirements: Contact your state’s licensing board for your industry

States with Unique GLI Considerations

California:

• High litigation rates = higher premiums
• Wage and hour laws create additional exposures
• Wildfire risks affect some industries

Florida:

• High litigation = very high premiums for some industries
• Hurricane exposure increases rates for some businesses

New York:

• High jury awards = higher premiums
• Additional regulations for some industries

Texas:

• Tort reform has moderated costs somewhat
• Business-friendly environment
• Varied requirements by city/county

How to File a GLI Claim

Knowing the process helps you handle claims efficiently.

Immediate Steps After an Incident

1. Ensure Safety: Address any immediate safety concerns first.

2. Document Everything:

• Take photos and videos
• Get witness contact information
• Write down exactly what happened
• Note date, time, location
• Preserve any relevant evidence

3. Do NOT Admit Fault: Be helpful and concerned, but don’t admit liability or make promises about payments.

4. Notify Your Insurer Immediately: Most policies require “prompt” notice. Call within 24 hours.

5. Provide Incident Reports: If someone was injured, create an internal incident report.

6. Do NOT Discuss the Incident: With anyone except your insurer and attorney. Don’t post on social media.

The Claims Process

Step 1: Report the Claim

• Call your agent or insurer’s claims hotline
• Provide basic incident details
• Get a claim number

Step 2: Claims Investigation

• Adjuster is assigned
• You’ll be interviewed
• Adjuster may inspect scene
• Adjuster gathers documentation

Step 3: Coverage Determination

• Insurer determines if claim is covered
• If covered, defense begins
• If denied, you receive explanation

Step 4: Defense and Negotiation

• Insurer hires attorney to defend you
• Negotiations with claimant begin
• Medical records, estimates, documentation reviewed

Step 5: Resolution

• Settlement reached, OR
• Case goes to trial
• Insurer pays up to policy limits
• Claim closes

Timeline: Simple claims resolve in weeks to months. Complex claims or lawsuits can take 1-2+ years.

Your Responsibilities During Claims

• Cooperate fully with insurer
• Provide requested documentation promptly
• Attend depositions or hearings if required
• Don’t discuss claim with anyone except insurer/attorney
• Don’t make independent settlements

FAQs About General Liability Insurance

Can I get GLI with a bad claims history?

Yes, but it will be more expensive. Expect:

• 50-100%+ premium increases
• Higher deductibles
• Limited coverage options
• Possible need for surplus lines insurance

Some “high-risk” insurers specialize in businesses with claims history.

Does GLI cover me if I work from home?

Yes, GLI covers your business operations regardless of location. However:

• It doesn’t replace homeowners insurance
• Client injuries at your home are covered
• Damage you cause during business is covered
• Your home-based office location may affect rates

Do I need GLI as an LLC?

Yes. Being an LLC protects personal assets from business debts, but doesn’t eliminate the business’s need for insurance. The LLC itself still faces liability and needs protection.

Can I cancel GLI if I’m no longer working?

Yes, but be aware:

• Claims can be filed years after an incident
• “Claims-made” policies only cover claims made while policy is active
• You may need “tail coverage” to protect against future claims for past work
• Canceling mid-term may result in penalty or reduced refund

What’s the difference between “occurrence” and “claims-made” policies?

Occurrence Policies (more common for GLI):

• Covers incidents that occur during the policy period
• Protects you forever for those incidents, even if claim is filed later
• More expensive but better long-term protection

Claims-Made Policies:

• Covers claims made (filed) during the policy period
• Incident must have occurred after the “retroactive date”
• Cheaper initially but may need tail coverage
• More common for Professional Liability

For GLI, most businesses get occurrence policies.

How often should I review my GLI policy?

Annually at renewal, and also:

• When revenue increases significantly
• When you hire employees
• When you start new service lines
• When you expand to new locations
• When contract requirements change
• After a claim

Does GLI cover my subcontractors?

Usually NO. Subcontractors need their own GLI. However:

• You may be liable for subcontractors’ actions
• Your GLI may provide some defense, but coverage is limited
• Always require subcontractors to have their own GLI
• Verify their coverage and get certificates of insurance

Additional Resources

For more information about General Liability Insurance:

• National Association of Insurance Commissioners (https://content.naic.org/) – State insurance department contacts, consumer guides, and regulatory information
• Insurance Information Institute (https://www.iii.org/) – Comprehensive business insurance education and industry data

Understanding General Liability Insurance protects your business from the unexpected risks that come with operating in today’s litigious environment.