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Written byJessica Martel
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Jessica is a freelance writer, professional researcher, and mother of two rambunctious little boys. She specializes in personal finance, women and money, and financial literacy. Jessica is fascinated by the psychology of money and what drives people to make important financial decisions. She holds a Masters of Science degree in Cognitive Research Psychology.
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Edited byMatthew Gross
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Matthew Gross is an editor at Compare.com. With a background in editing and SEO, he’s passionate about creating content that helps readers get the information they need to make more informed decisions. Prior to Compare.com, Matthew brought his user-centered approach to his work with global brands like Apple and Adobe.
Matthew graduated from Illinois State University, where he earned his bachelor’s degree in Journalism.
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In This Article
You can run into all kinds of situations as a business owner. A customer could slip and fall in your store, your employee might break a window at a client’s house, or someone could sue you for slander. General business liability coverage can protect your business against a variety of third-party claims and lawsuits.
We’ll explain how business liability insurance works, the different types of coverage, and how to find the right policy for your business needs.
Key Takeaways
Business liability insurance covers costs for property damage, medical expenses, and court fees.
Business liability insurance can include general liability, professional liability, and product liability coverage.
The cost of liability insurance depends on your industry, the size of your business, and the amount of coverage you need.
How Business Liability Insurance Works
Business liability insurance protects your business from third-party bodily injury and property damage claims. It typically covers property damage, medical expenses, court costs, judgments, settlements, and claims-handling costs.
For example, if a client slips and falls while at your store, business liability insurance can help cover the medical or legal expenses. Or if you own a cleaning business and damage a client’s floor with a cleaning product, it can help cover the costs of repairing or replacing the floor. It can also help cover your legal costs if someone tries to sue you for false advertising.
Do Small Businesses Need Liability Insurance?
Whether your small business sells products, works with clients, or advertises, you need general liability coverage. If you have a limited liability company (LLC), your personal assets, like your house and car, are generally protected from business lawsuits. But your business assets are still at risk.[1] [2]
Common examples of small businesses that purchase liability protection include contractors, caterers, painters, plumbers, and photographers.
Types of Business Liability Insurance
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You have several types of liability insurance to consider for your business. Here are some common options:
General liability
General liability coverage helps protect your business from property damage and bodily injury liability.
For example, if you own a delivery company and your employees drop a piece of furniture that damages your client’s floor, your general liability insurance can help pay for the damages.
Without liability insurance, you’d have to pay to repair or replace the floor out of your own pocket.
Professional liability (E&O)
Professional liability insurance, also known as errors and omissions (E&O) coverage, helps protect businesses that provide professional services or offer advice to their clients.
For example, if you own an accounting company and your business makes an error that causes your client financial damages, E&O coverage can provide protection.
Product liability
Product liability insurance helps if you sell a product or service that causes damage. If you sell a kitchen appliance that burns a customer, product liability coverage can protect you against financial losses.
Employment practices liability (EPLI)
If you have employees, you might want employment practices liability insurance. EPLI covers businesses from employee lawsuits, including discrimination, wrongful termination, and sexual harassment. EPLI helps cover the costs associated with defending a lawsuit in court.[3]
Cyber liability
Cyber liability insurance provides financial protection against cyberattacks and computer incidents. While cybercriminals can target any type of business, companies that store or handle private data, like health or financial information, may be at a higher risk.[4]
Commercial auto liability
You may need commercial auto liability coverage if your business uses vehicles for professional tasks. If you own a catering business and one of your trucks causes an accident while delivering food, commercial auto liability coverage can help pay for property damage or medical expenses.[5]
What Business Liability Insurance Covers
General business liability insurance can protect your business against a wide variety of incidents, including:
Bodily injuries: If a customer slips and falls in your store, your coverage can help pay for their medical expenses.
Property damage: If you crack a client’s window while working at their house, your policy can help cover the cost of replacing it.
Personal injury, like libel or slander: If you accidentally make a false claim about another business, your coverage can protect you if a company sues you for damages.
False advertising: Let’s say you own a cleaning company and claim to use all-natural products, but your client sees you using a harsh chemical cleaner that damages their floors. Your insurance can help cover the legal damages.
What liability insurance doesn’t cover
Purchasing a general business liability policy doesn’t protect your business from everything. Here are a few examples of some exclusions:
Employee injuries: If your employee gets hurt at work, your liability insurance doesn’t cover them. You need workers’ compensation insurance to cover them.
Employee lawsuits: A general liability policy doesn’t cover failure to employ or promote, or claims of sexual harassment. You need to buy employee practices liability coverage for those.
Professional mistakes: If you give a client inaccurate advice, you need an E&O policy to cover damages.
Car accidents: Business liability insurance doesn’t cover car accidents involving company vehicles. You need a separate commercial auto policy.[6]
How Much Does Business Liability Insurance Cost?
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Whether you’re a small-business owner, work as a freelancer, or run an e-commerce store, every business should consider buying general liability coverage. Business owners pay an average of $65–$85 per month for a general liability policy. Your industry, the size of your business, and the amount of coverage you need will affect the cost.
Depending on the type of business, you may need to add extra coverage to ensure you have adequate protection and meet your state’s insurance requirements.
Factors that affect liability insurance costs
Several factors affect the cost of business liability coverage, including:
Type of business: If you work in a high-risk industry, you’ll typically pay higher rates.
Location: Insurance costs vary based on the risks associated with where you do business.
Number of employees: Larger teams typically file more claims and pay higher insurance costs.
Coverage limits: The amount of coverage you need also affects cost. More coverage is generally more expensive.
Deductibles: Choosing a higher deductible can help lower your monthly premiums. But you’ll pay more out of pocket if you need to file a claim.[7]
Claims history: Insurers consider businesses with a history of claims to be a higher risk, which could result in higher premiums.
Business Liability Insurance Companies
Many insurance companies, including Progressive, The Hartford, and GEICO, offer business liability coverage. Hiscox and Next Insurance specialize in insurance for small-business owners.
When you’re ready to purchase a business liability policy, you have a few different options. You can visit an online marketplace to get multiple quotes and quickly compare companies. If you know which company you want to use, you can buy a policy directly from the insurer. For help making a decision, you can work with an insurance broker.
How to Get Business Liability Insurance
Here’s a step-by-step look at how to purchase a business liability insurance policy:
Assess your risk. Consider the types of accidents, lawsuits, and natural disasters that your business might deal with.
Determine coverage needs. Based on your risks, decide what types of business liability coverage you need.
Gather necessary information. To get a quote, most insurance companies need some basic information, including your business name, location, industry type, years in business, number of employees, history of liability losses, and how much coverage you want to buy.
Compare multiple insurers. Research at least three insurance companies or use an insurance-comparison website to compare prices, deductible options, and discounts.[8]
Purchase a policy. Once you decide on the insurer that’s right for you, review your policy and pay your premiums.
How to choose the right liability coverage for your business
Here are some tips to help you find the right liability coverage for your business:
Check the company’s reputation. To make sure you purchase insurance from a reputable company, verify that the insurer is in good financial health.
Read customer reviews. To learn more about how an insurance company handles questions and claims, read reviews from current and former customers.
Re-assess annually. As your business grows, your insurance needs may change. Review your options every year to see if you can find a better price.
Business Liability Insurance FAQs
For more information about business liability insurance, check out these answers to some common questions.
What is liability insurance for a business?
Liability insurance for a business offers protection against financial loss from third-party claims of bodily injury and property damage. For example, if someone falls in your store, business liability insurance can help cover their medical expenses.
How much is a $1 million business liability insurance policy?
It depends. The cost of a $1 million business liability insurance policy varies based on the type, size, claims history, and location of your business.
What’s the best liability insurance for a small business?
It depends. The best liability insurance varies based on the type of business you own. But all businesses should consider general liability insurance for financial protection against third-party claims for bodily injury, property damage, and slander.
What are the different types of business insurance?
Many different types of business insurance exist, including general liability, professional liability, product liability, a business owners policy (BOP), workers’ compensation, and commercial auto.
Do LLCs need liability insurance?
Yes. If you have a limited liability company (LLC), your business will still need liability insurance. With an LLC, your personal assets, like your house and car, are generally protected from business lawsuits, but your business assets are still at risk.
Sources
- U.S. Small Business Administration. "Choose a business structure."
- U.S. Small Business Administration. "Get business insurance."
- Insurance Information Institute. "What is employment practices liability insurance (EPLI)?."
- Insurance Information Institute. "Cyber insurance: a key part of a robust business strategy."
- Insurance Information Institute. "Insuring Your Business: Small Business Owners' Guide to Insurance."
- National Association of Insurance Commissioners. "Small Business Insurance."
- Insurance Information Institute. "Shopping for business insurance."
- Insurance Information Institute. "How to find the right auto insurance."
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Jessica MartelPersonal Finance Writer
Jessica is a freelance writer, professional researcher, and mother of two rambunctious little boys. She specializes in personal finance, women and money, and financial literacy. Jessica is fascinated by the psychology of money and what drives people to make important financial decisions. She holds a Masters of Science degree in Cognitive Research Psychology.
Matthew Gross is an editor at Compare.com. With a background in editing and SEO, he’s passionate about creating content that helps readers get the information they need to make more informed decisions. Prior to Compare.com, Matthew brought his user-centered approach to his work with global brands like Apple and Adobe.
Matthew graduated from Illinois State University, where he earned his bachelor’s degree in Journalism.
