The Different Types of Liability Insurance and Which One is Right for You

Is General Liability Insurance Worth The Cost?

Almost every business needs liability insurance. It helps protect you from claims for bodily injury, property damage, personal and advertising injury, and other losses.

Doctors, lawyers, architects, and consultants often acquire professional liability insurance (errors and omissions coverage). These policies typically cover mistakes or negligence that lead to financial losses for clients.

General Liability

General liability insurance, also called general commercial liability (CGL) or small business liability, is your first defense against lawsuits that could drain your bank account. It covers costs like medical bills if someone slips and falls in your workplace or if your product damages their car. It can also cover damage to other people’s property resulting from your work, such as if your employees spill paint on a client’s carpet.

It won’t protect you from claims based on professional negligence, though—that’s covered by Errors and Omissions insurance or Professional Liability insurance. And it doesn’t cover theft or damage to your company property, which is covered by commercial property insurance. However, you can usually add this coverage to your CGL policy for an additional cost.

Automobile Liability

Auto liability insurance protects your business from the financial costs of injuries or property damage caused by employees driving company-owned vehicles on public roadways. Most states require a minimum amount of auto liability coverage. You can increase your limits to add a higher degree of financial protection.

Bodily injury liability covers the cost of injured pedestrians and passengers in your vehicles up to your policy limit, and it also pays for legal fees in case you’re sued. It’s essential to have a high level of bodily injury liability insurance in no-fault states where drivers must obtain personal injury protection (PIP) or uninsured/underinsured motorist coverage.

Business owners should consider adding collision and comprehensive coverage to their automobile liability policies, like in liability insurance Newark DE. Collision insurance covers your car when it’s hit by another vehicle or object, and comprehensive coverage reimburses you for damage from fire, theft, vandalism, windstorms, hail, and natural disasters like tornadoes.

Workers’ Compensation

Workers’ compensation, or “comp” insurance, protects your business from lawsuits if an employee gets injured. It pays for medical expenses incurred by an injured worker, partially covers lost wages while not working, and even helps pay for funeral costs. It’s mandatory coverage in most states, though requirements vary by state.

A claimant must show that a work-related injury or illness happened while performing duties related to their employment (the “course and scope” of their job). The program is governed by state law, but there are significant differences in rules and regulations between the states. Contractors and freelancers are rarely eligible. Insurance fraud is standard, with employees attempting to fake or exaggerate injuries or illnesses. Disputes are often handled by the state’s Workers’ Compensation Board.

Professional Liability

Professional liability policies (errors and omissions or E&O) protect traditional professionals like accountants, lawyers, and architects and quasi-professionals like insurance agents and real estate brokers from financial losses resulting from their professional negligence. It can cover claims about missed deadlines, faulty advice, misrepresentations, and even a failure to deliver services.

Like general liability, it can pay for third-party bodily injury, property damage caused by your business or its employees, and legal defense costs incurred in defending against a liability claim. However, unlike commercial general liability policies, professional liability insurance is usually a “claims-made” policy that only covers incidents that occurred while the coverage was in effect. Unless you have prior acts coverage, you must renew your professional liability policy regularly to avoid gaps in coverage.

Commercial Umbrella

No matter how much your business puts into prevention and safety, there is no way to protect against everything that could go wrong. That’s why many businesses carry commercial umbrella liability insurance policies covering claims exceeding your underlying policies’ limits.

For instance, let’s say your restaurant is sued after a group of customers get food poisoning, and the cost of the lawsuit pushes your existing commercial general liability limit to the maximum. Your commercial umbrella policy would kick in to pay for the remaining damages in this case.

As you can imagine, the size of your company and the scope of your operations will influence how much you pay for an umbrella policy. But it’s important to remember that even a small claim can cause catastrophic financial damage without an umbrella policy.