General Liability Insurance vs. Workers' Compensation Insurance
As a small-business owner, you know the important role your employees play in your business’s success. So when they are hurt on the job, which small business insurance policy can you rely on to help you cover the costs of their medical expenses? Does your General Liability policy help at all? What does Workers’ Compensation Insurance cover, anyway?
If you’re having trouble discerning between the merits of General Liability Insurance and Workers’ Compensation Insurance, keep reading. You’ll discover how each policy benefits your small business and how they work together to offer comprehensive financial protection.
What Is General Liability Insurance?
General Liability Insurance is a policy that safeguards your business against the high cost of certain unavoidable liabilities. But let’s be clear right out of the gate: this policy does not cover employee injuries. Instead, GL covers third-party (non-employee) damages, including…
- Bodily injuries that a person sustains on your business real estate.
- Damage you accidentally cause to someone’s property.
- Advertising injuries (e.g., slander, libel, or trademark infringement).
When your small business is sued over one of these incidents, General Liability covers your lawyers’ fees, court costs, and settlements or judgments (up to the stated limits of your policy). Because these claims can be the result of accidents or oversights that any business may encounter, General Liability is often considered an essential coverage.
What Is Workers' Compensation Insurance?
Workers’ Compensation Insurance is the policy you need when your employees suffer work injuries or illnesses. In fact, most states require employers to carry this coverage if they have even one employee, but the laws vary depending on your industry and where you live. Also known as Workman’s Comp or Workers’ Comp, you can count on this coverage to help your business pay for…
- Work-injured employees’ medical and recovery expenses.
- Replacement wages when employees can’t work because of a covered injury or illness.
- Dependent support payments and funeral expenses when fatal occupational injuries occur.
- Liability expenses when your business is sued over work injuries.
If you don’t have employees yet, you can still carry Workers’ Comp to cover yourself. However, many sole proprietors with employees opt out of their own coverage to reduce their premiums.
How General Liability and Workers' Comp Policies Are Alike
Here’s how General Liability and Workers’ Compensation Insurance are similar:
- Both policies deal with bodily injuries. However, as we noted above, the focus of this protection is fundamentally different. General Liability protects you when a client breaks an ankle on your property and sues for medical expenses. Workers’ Comp steps in when your employee breaks an ankle while working and makes a claim for coverage.
- Both policies may be required for construction professionals. If you work as a construction contractor, a general contractor may require you to carry your own General Liability and Workers’ Comp coverage. General Liability can cover lawsuits over your completed work if it injures a third party. And having your own Workers’ Comp coverage means the GC won’t have to cover you with their policy. Not to mention, in some states, construction workers must carry Workers’ Comp even if they don’t have any employees. For example, solo roofers in California must carry coverage.
Ways General Liability Insurance and Workers' Compensation Insurance Differ
Take note of how these policies are unique:
- Workers’ Comp is regulated by state laws. It’s the only insurance policy that employers are legally required to carry. Though the laws differ depending on where you live, most regulations apply when your business has a certain number of employees. In some states, that means one full- or part-time employee. In others, you must have four employees before the mandate kicks in. You can learn about your state’s Workers’ Comp laws by checking out our guide “Workers’ Compensation Insurance Laws by State.”
- General Liability Insurance matters regardless of your business’s size. While Workers’ Comp mandates usually kick in at certain employee thresholds, a small-business owner should have General Liability coverage even if they have no employees. That’s because, despite your best risk-management efforts, there’s no predicting when someone may waltz through your doors, trip over your welcome mat, and sue you for their accident.
General Liability Insurance and Workers' Comp: It Takes Two to Protect Small Businesses
In short, you need both General Liability and Workers’ Comp coverage to run a strong business. One policy guards you from claims when third parties are injured on your property. The other helps your business adhere to state laws and protect your employees when their work takes a physical toll.
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