Introduction
As a business owner, it can be a challenge to figure out what types of liability insurance you need. The right policies depend on the types of risks your company faces. Big and small businesses both face liability risks, but the type of liability can change based on what you do. For example, a contractor might be liable if something they’ve built injures someone, where a consulting business might be liable for a client’s financial losses if they made a mistake in the advice they gave. Both of these types of liabilities can lead to a lawsuit. That’s where general liability insurance and professional liability insurance come into play. Business owners and operators commonly confuse general vs. professional liability insurance, asking why they need coverage for either, and in some cases, both.
General liability and professional liability insurance are both designed to:
- Protect against business liabilities – A single lawsuit could damage a business beyond repair. General liability and professional liability help alleviate the financial burden these incidents cause, so your business feels minimal impact following a claim.
- Meet contractual requirements – Some employers or clients may require you carry a specific amount of general liability or professional liability coverage before you can work for them.
If you’re curious about the difference between general liability versus professional liability insurance, continue reading to learn about the nuances of each, how they’re similar, and how they differ.
General Liability Insurance
General liability insurance is a type of policy that protects your business in claims of bodily injury incurred on your commercial premises or when using your product; damage to the plaintiff’s property; or damages caused by slander, libel, copyright infringement, and more.
General liability insurance provides coverage for physical damages. Most businesses need general liability insurance coverage given the wide range of exposures a policy will cover. In fact, it’s estimated that 40 percent of businesses will face a lawsuit that a commercial general liability insurance policy would cover.
If your business gets slapped with a lawsuit, the court costs and legal fees alone can be financially devastating, even if you’re not at fault. This is why it’s typically recommended that all businesses have general liability coverage.
If your business sells a physical product, the general liability policy will cover injuries and damages caused by defective products up to a certain point. You may also consider a product liability policy in addition to your general liability coverage. Product liability insurances can go even further to protect your business from faulty software, defective buildings, or environmental exposures.
Employment Practices Liability Insurance can be broken into three categories: Coverage B, which covers wrongful termination and general harassment, Coverage C, which covers general discrimination practices and Coverage D which covers general compliance issues.
The general liability policy is a blanket policy that covers a wide range of liabilities, but there are limitations on what general liability will and will not cover. For example, general liability policies tend to explicitly exclude negligence claims and injuries caused by your employees’ actions. This is why many businesses opt for Employment Practices Liability Insurance (EPLI) in addition to general liability and product liability coverage.
How Much Does General Liability Insurance Cost?
Your general liability insurance cost typically depends on many factors, including your:
- Type of business, because if you’re in certain industries, like construction, you face more risks and may pay more for a policy.
- Years of experience, because businesses that have been around longer usually pay a lower rate than newer ones.
- Location, especially if you’re in an area that has a higher risk of damage from disasters, like storms or floods.
What Is Professional Liability Insurance?
There are a few considerations to understand when looking at general vs professional liability insurance. Professional liability insurance, also known as errors and omissions insurance (E&O), is a type of insurance policy that protects your business in claims of negligence, malpractice, errors, and omissions during the fulfillment of a professional service.
Professional liability insurance provides coverage for financial damages. When considering general vs professional liability, there are many factors to consider. If you’re educated and trained to provide a service or trade — such as a financial advisor, accountant, doctor, lawyer, or dentist — you should have professional indemnity. When clients incur financial losses because of inadequate or incomplete service on behalf of your business, you are exposed to a lawsuit.
Even if you perform your duties and responsibilities, if the customer’s expectations aren’t met or they’re otherwise dissatisfied with your service, you could be sued. Professional liability insurance can cover you in the event you provide clients with bad advice or misrepresent the results and outcomes.
How Much Does Professional Liability Insurance Cost?
Businesses can make different mistakes. That’s why the cost of professional liability insurance varies from one business to another. Some general factors that can impact your professional liability cost include your:
- Type of business
- Policy coverage limits
- Number of employees
- Years in business
- Location
- Claims history
Differences Between Professional vs General Liability
There are some differences between general vs professional liability insurance that might help clarify what policy or policies you should consider for your business.
Professional and General Liability Cover Different Exposures
General liability can cover your business for a wide range of claims including bodily injury, personal injury (as a result of libel, slander, etc.), property damage, legal expenses, product liability, and even manufacturing-related injuries. Whether it be a customer, visitor, vendor, or other third-party, if a physical injury occurs on or with your business’ property, you could face a lawsuit that general liability insurance would protect.
Professional liability insurance, on the other hand, offers protection for professionals who provide bad advice, act in bad faith, infringe on copyrights, or misrepresent themselves or their services. If someone experiences a financial loss because of a service-provider’s errors and omissions, they can sue said service provider — which is why you should consider professional liability insurance if you provide services to customers or clients. Still, there’s more to understand for general vs professional liability.
Claims-Made Coverage Contingencies
General liability insurance is a “claims-made” policy, so if you have the insurance when the claim is filed, you will be covered per occurrence when you make a claim.
Professional liability insurance is also a claims-made policy but has a retroactive date exception. This means if the event that led to the claim occurred before the retroactive date of your policy, the current insurance policy won’t cover the claim. This is why it’s important for service providers to remain vigilant when their policy coverage could lapse and should be renewed. If gaps in coverage do exist, businesses should look into prior acts coverage as well.
How to Decide Between General vs Professional Liability
If you’re still considering whether you need general liability versus professional liability insurance, ask yourself a few questions.
Questions to ask regarding professional liability insurance
- Do I ever make suggestions to a client that could be misunderstood and executed?
- Is it possible that my clients could be financially burdened by my mistakes?
- Is there a variation of services rendered from client to client?
If you answered yes to any of the above, you should consider exploring your options with an insurance broker and getting an instant professional liability insurance quote.
Conclusion
You might think that if your customers only interact with your business online, you don’t need a general liability policy. In most cases, however, you could still be exposed to personal injury lawsuits depending on your site’s content, such as copyright infringement or libel lawsuits. Most industry experts would recommend having a general liability insurance policy. Even if you believe your business has an extremely low risk of being landed with a lawsuit, discuss with an insurance broker to learn more or get your general liability insurance quote.
A common question among small business owners is, “What’s the difference between general liability and professional liability insurance?” Understanding how they compare and contrast will help you make the best decisions when matching your small business liability risks to individual coverages. You may find you need both.
Find out how much a policy might cost you and how this insurance can help protect your business by getting a professional liability quote from us.
