General liability vs. professional liability insurance

General liability insurance and professional liability insurance each cover specific types of small business risk exposures:

• General liability covers third-party property damage or bodily injury, such as when a customer sues you after slipping and falling on your premises.
• Professional liability covers financial damages, such as if a client claims your professional mistake or bad advice caused them to lose money.

Here's a closer look at each of these policies:

General liability insurance protects your company against common third-party liability claims, including:

• Customer bodily injuries: If a customer or other third party is hurt at your business, general liability will help pay their medical bills and your legal defense costs if they sue.
• Client property damage: If your business accidentally damages a third party’s property, general liability will cover the cost to repair or replace the item.
• Product liability: Most general liability policies include product liability insurance, which covers defective products, food contamination, labeling errors, and other product risks that could harm a customer.
• Personal and advertising injuries: If you’re sued for an advertising injury such as libel, slander, or copyright infringement, general liability will cover legal expenses, including attorney fees and any resulting settlement or judgment.

Although general liability and professional liability insurance policies are very different, they do have a few similarities, including:

• Third-party protection: Both policies cover claims brought by customers, vendors, and other people outside of your business.
• Legal defense coverage: General liability and professional liability will cover your attorney's costs and court fees, even if a lawsuit has no merit.
• Contractual requirements: Both types of coverage are often required by clients. For example, some construction contractors must carry their own general liability coverage, while many financial advisors need their own professional liability policy.

When calculating premiums for general liability and professional liability insurance, underwriters assess your risk level based on your work, clients, and coverage choices. Here are several key factors that can impact your rates:

• Your industry risks. For example, a convenience store with heavy foot traffic will pay more for general liability insurance than a consultant who works from home.
• Location. Regional factors such as population density, healthcare costs, and property values will affect your insurance rates.
• Services provided. The more specialized your work, the higher the likelihood of an expensive claim. Strategic consulting or complex professional services often pay higher rates than routine work.
• Business size and revenue. Businesses with higher revenue or a larger workforce typically pay more, since they take on more clients and projects, increasing the chances of a claim.
• Coverage limits and deductible. You can save money on liability insurance by choosing lower limits or a higher deductible, but make sure you select limits that can cover a potential claim.
• Claims history. Businesses that have filed a claim on their policy tend to pay more, since insurance carriers generally view them as higher risk.

General liability is essential for businesses with a physical presence or that interact with the public. It's especially common for:

• General contractors, plumbers, electricians, and other contractors that work on jobsites — general liability coverage is required in California and Florida to get a contractor's license
• Cleaning services and landscapers that work on client property
• Retail stores and restaurants with regular customer foot traffic
• Event planners and photographers that work at venues and on client property

Professional liability offers key protection for businesses that provide advice or specialized services to clients who could claim their work caused them financial harm, including:

• Accountants and CPAs who handle client finances
• Attorneys and lawyers whose counsel could expose clients to financial risk
• Real estate agents and brokers, who are required by many states to have this coverage
• Architects whose design errors could lead to costly construction defects or structural failures

Businesses that need both general liability and professional liability coverage often save money by bundling these policies, since that's usually cheaper than buying each policy individually. However, bundles do come with certain limitations:

• Shared limits: Since bundled policies typically share a single aggregate limit, one large claim could exhaust your coverage, leaving you with little to no protection for the rest of your policy period. Stand‑alone policies have their own financial pools.
• Defense costs: Typically, your general liability policy will cover legal defense costs on top of your coverage limit. However, professional liability policies include legal defense costs within the limit, meaning a costly lawsuit could reduce the funds available for another claim.
• Extended coverage: Most umbrella policies exclude professional liability insurance. If you need higher limits, you may need to purchase separate excess liability policies to extend coverage for both.