Commercial General Liability Insurance Defined
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Don't you hate it when you look up a word in the dictionary, and the definition leaves you more confused than you were before? Sometimes that's the way insurance definitions can sound. They use words you don't know to define a word you don't know. We can do better than that.

Here's an explanation of Commercial General Liability Insurance that any small-business owner can understand:

  • General Liability Insurance (also called Commercial General Liability Insurance)
    is an insurance policy that pays for a small business's legal expenses when it is sued by non-employees.
  • Lawsuits covered by General Liability Insurance usually include property damage, bodily injury, slip-and-fall accidents, slander, libel, copyright infringement, product liability, and more.
  • General Liability Insurance does NOT cover lawsuits alleging professional negligence (those are covered by Errors and Omissions Insurance).

Here's an example of Commercial General Liability Insurance in action. A landscaper puts down his hedge trimmer to run to his truck. It's a hot day, and he has forgotten his water bottle on the front seat. After grabbing the bottle, he hears a scream and runs back to see his client's child had played with the trimmers and dropped the blade on his foot, severing a toe in the process. The parents file a lawsuit for $150,000. General Liability Insurance pays for the landscaper's lawyers in addition to the six-figure damages he owes the family.

What Exactly Is Business Insurance?

Insurance is complicated, but one simple way to understand an insurance policy is to think of it like a contract. In fact, it is a contract. The insurance company offers you a service in exchange for your annual premium. In your policy, the insurance company outlines exactly what things it will pay for.

In the case of Commercial General Liability Insurance, the insurance company explains in your policy which lawsuits it will cover and which it won't. The policy also sets a maximum amount of coverage called a "policy limit."

Many small businesses start with $1,000,000 per-claim limit and a $2,000,000 per-term limit. This means the insurer can pay $1 million toward any one claim and can pay a total of $2,000,000 over the term of your policy, which is usually a year.

In this sense, your insurance policy is really a contract that describes how and to what extent you'll be protected from lawsuits.

How Does General Liability Insurance Help Small Businesses?

General Liability Insurance can help small businesses…

  • Sign contracts with new clients.
  • Afford the cost of a lawsuit.
  • Avoid bankruptcy.
  • Acquire professional licenses.
  • Rent a professional office space.

How does it do all these things? Well, for starters it offers financial security because you'll know that one lawsuit won't take down your business.

But more than that, General Liability Insurance is also important simply because clients, local governments, and landlords might require you to have it. For instance, in order to get an electrician's license, a contractor might have to meet state requirements for Commercial General Liability Insurance.

To learn more, see our article on General Liability Insurance requirements.

What Kinds of Businesses Need General Liability Insurance?

General Liability Insurance is extremely common because many business owners need it to protect their company and sign important contracts. When businesses sign contracts with each other, they will often include a clause in the contract that requires the other party to have General Liability Insurance. Why?

Because most business owners do one of more of the following:

  • Interact with clients / customers on their premises.
  • Have a store or building that's open to the public.
  • Interact with people on a job site.
  • Handle client property.
  • Rent business space.
  • Sell products to customers.
  • Advertise or market their businesses.
  • Use social media / have an Internet presence.

General Liability Insurance protects you from the things that can go wrong when you engage in any of the above activities.

What Can I Do to Save Money on My Commercial General Liability Insurance?

There are two ways to get lower premiums on General Liability Insurance:

  • Shop around and get quotes from multiple insurance companies.
  • Buy GL Insurance bundled with Property Insurance and get a reduced premium.

This second option is only available to small businesses and is called a Business Owner's Policy. Many small-business owners are quick to take advantage of the cost savings BOPS offer on two important insurance coverages.

General Liability Insurance: Further Reading

General Liability Insurance in the Insureon Blog