General liability vs. professional liability insurance: which one does your business need (2024)

In many cases, insurance may be optional. However, the risk to your business and its assets is great if you don’t have it. You’ll want to consult with an insurance professional to determine the type of business insurance — general liability, professional liability, both, or something else — that you need and how much coverage fits your needs.

What is general liability insurance?

You can find general liability insurance by a couple of different names on the market. It is also called small business liability insurance or commercial liability insurance. In general, the policy will cover the business from claims made by third parties that state the business is responsible for bodily injury, damage to property, or personal injury.

A slip and fall accident is one of the most common claims for a general liability policy. In this scenario, the third party (often a consumer) slips on your business premises and falls, getting hurt as a result. If this happens and you have general liability insurance, the medical bills associated with the person’s injuries are paid for by the insurance. Should that person get an attorney to represent them, the policy also covers attorney’s fees. A general liability policy is important to a small business owner because injuries can be tens of thousands of dollars or more.

However, according to Josh Rohrscheib, Attorney for the Onward Injury Law firm, “Some people think that if they have general liability insurance, they are covered no matter what for everything.” This simply isn’t the case.

What does general liability insurance cover

General liability provides coverage for the following incidents:

• Bodily injury: This pays for the medical bills associated with a third party getting injured as a result of your business operations. This does not cover employees who get injured on the job (workers’ compensation covers that).
• Damage to personal property: If a third party’s personal property is damaged resulting from your business operations, this is a covered incident of general liability. An example would be if a tree trimmer accidentally has a branch fall on a customer’s car while doing his job.
• Personal injury: Personal injury occurs when a person’s reputation is damaged. This can be in the form of libel or slander.
• Product hazard: Product liability is covered in comprehensive general liability policies that pay for damages or injuries resulting from completed product accidents. For example, if a lithium battery for a cell phone catches fire and leads to damages, this is covered.

How much does general liability insurance cost

While a general liability policy may be as little as $500 per year, The Hartford reports that the average cost of a policy is $1,057. Matt Morris, an insurance broker for World Insurance, says that the cost depends on “the industry you serve, the size of your company, and the area that you work in.” The riskier of an industry that you work in, the more costly your insurance will be. The same is true if you have a larger company that generates more revenues – you’ll pay more for insurance. Some geographic areas have a higher claims history, which will cost you more in general liability insurance.

Who needs general liability insurance?

General liability insurance is sometimes, but not always, a required insurance policy. If you enter into a lease, chances are the landlord will require you to have a general liability policy that covers damages to the building to take the liability off their shoulders. Some cities and counties may also require certain professional services contractors to have general liability insurance to protect the public from accidents. This may be required to obtain a permit or license.

If you aren’t required to get a policy, you may still want to consider one for the added protection. This is especially true if your company cannot afford a claim of tens of thousands or more in medical costs. General liability will provide you with the financial protection needed for a relatively small annual premium.

What is professional liability insurance?

Professional liability insurance is also known by other names. You can find it as professional indemnity insurance, errors and omissions insurance, or malpractice insurance. It protects professionals from claims stating that they did not properly administer professional services and there was a resulting injury or property damage as a result.

You can most easily understand professional liability insurance in the case of medical malpractice insurance. If the doctor were to amputate the wrong leg accidentally, this could have serious physical implications for the patient. The result could be hundreds of thousands of dollars in a potential lawsuit. The medical malpractice insurance pays the lawsuit’s legal fees and settlement costs.

What does professional liability insurance cover

Your professional liability insurance policy covers the following:

• Defense costs: It pays for the costs of an attorney to take on your case. In most cases, the insurance company provides the attorney to defend you.
• Alleged or actual negligence: Negligence occurs when you have not shown reasonable care in providing services, resulting in injury or damage. This might be incorrect advice to a client or improper service performance.
• Temporary staff and independent contractors: You are protected against the claims of staff and independent contractors working for you. For example, if you are a contractor and have a carpenter working as an independent contractor on the job, you may get sued for his negligence, which would be covered by professional liability insurance.
• Claims arising from services provided in the past: Professional liability stands behind the work you have been contracted to do. For example, an architect is protected from damages from a building he designed in the past that may collapse due to mathematical errors.
• Claims or damages: This may be an injury or damages to property. An award is paid to the claimant for damages resulting from your work.
• Personal injury: Claims may be paid for libel or slander you make on another person. This is an overlap of coverage with general liability.
• Copyright infringement: You may face a claim if you erroneously infringe on another’s copyright or trademark. Professional liability insurance will cover this claim and the legal costs associated with it.

How much does professional liability insurance cost

Professional liability insurance can cost as little as $20 per month, but will depend on the type of services you provide, how large your company is, and where you are located. According to The Hartford, the average cost of an individual providing services is $69 per month or about $824 annually for $1 million in coverage.

Factors that affect the premium include the size of the payroll, your claims history, your industry, and exposure to risk. The higher the payroll, the more claims that you have, and the more exposure to risk you possess, the higher your premiums will be. Service providers may need more or less than $1 million in coverage, which will also affect the premium.

Who needs professional liability insurance?

Professional liability insurance is designed for service providers. While common examples of providers who should have liability insurance include doctors, lawyers, architects, general contractors, and accounting firms, just about any service provider who is at risk of costing customers thousands in losses should have the policy.

Some state licensure boards do require professional liability insurance with minimum requirements. According to Morris, “If you’re in professional services, most of your claims come from your services if the consumers are out of money.” This is a key reason to have professional liability insurance along with or instead of general liability insurance.

How to choose between general liability and professional liability insurance

Choosing between general liability insurance and professional liability insurance can be challenging. In some cases, you may be required to have one or both by state law. In other cases, neither are required. When neither is required, you need to determine where your most significant risks are. This may require working with an insurance expert to do a risk assessment.

Businesses with a lot of foot traffic will likely want to have general liability insurance to protect against common slip-and-fall accidents. However, those offering professional services may want to protect against costly claims if they do something accidentally wrong in the delivery of services. When possible, a company will want to have both to protect against all the risks associated with both types of policies.

Keep in mind that having both still leaves gaps in insurance. You may still need to get workers’ compensation, cyber liability insurance, and other policies to protect against specific risks. Work with a reputable insurance broker to determine where your risks and needs are.

Frequently asked questions