Every business faces risk. A customer could slip and fall in your shop, a client could claim you damaged their property or a competitor could sue over an advertising statement. General liability insurance, often called CGL or GL, is the foundation of most small business insurance programs. It protects you from some of the most common claims and is often required by landlords, clients and lenders. This guide explains what it covers, what it does not, what it costs and how to buy it.
What Is General Liability Insurance?
General liability insurance covers legal costs and damages if your business is held responsible for certain third-party claims. It typically pays for:
- Bodily injury. A customer is hurt on your premises or by your operations.
- Property damage. You or your employees damage a client’s property.
- Personal and advertising injury. Claims such as libel, slander, copyright infringement in advertising or false advertising.
- Medical payments. Small medical costs for injured third parties, regardless of fault.
- Legal defense costs. Attorney fees and court costs, even if the claim is groundless.
Policies have per-occurrence and aggregate limits. A common limit is $1 million per occurrence and $2 million in aggregate.
What It Does Not Cover
General liability has important exclusions. It generally does not cover:
- Your own property or equipment. That requires commercial property insurance.
- Employee injuries. Workers’ compensation covers those in most states.
- Professional errors and omissions. Professional liability insurance covers mistakes in your services.
- Commercial vehicles. Business auto insurance applies.
- Data breaches and cyber incidents. Cyber insurance is separate.
- Intentional or criminal acts.
- Contractual liabilities beyond certain terms.
- Pollution and some other specialized risks.
Because of these gaps, many businesses combine policies. A business owner’s policy, or BOP, bundles general liability with commercial property coverage, often at a discount.
Who Needs General Liability Insurance?
Almost any business can benefit, including:
- Retail stores and restaurants.
- Contractors and tradespeople.
- Consultants and freelancers. They often pair GL with professional liability.
- Home-based businesses, since homeowners policies often exclude business activities. See our homeowners insurance guide.
- Landlords and property owners.
- Event vendors and service providers.
Many commercial leases, client contracts and licensing rules require proof of coverage, called a certificate of insurance.
How Much Does It Cost?
Premiums vary by industry, location, revenue, number of employees, claims history and coverage limits. Small, low-risk businesses may pay a few hundred dollars per year, while higher-risk operations like construction can pay much more. Insurers may charge per year, or per month with installment fees.
| Factor | Effect on cost |
|---|---|
| Industry risk | Higher risk, higher cost |
| Coverage limits | Higher limits, higher cost |
| Claims history | Prior claims raise cost |
| Revenue and payroll | More activity can mean higher premiums |
| Location | Litigation climate affects rates |
| Deductible | Higher deductible, lower premium |
How to Buy General Liability Insurance
- Assess your risks. Think about where claims could come from: customers visiting, work at client sites, advertising and products.
- Decide on limits. A common starting point is $1 million per occurrence. Check what contracts and landlords require.
- Consider a BOP if you also need property coverage.
- Get multiple quotes from insurers, agents and brokers. Independent agents can shop several carriers.
- Provide accurate information. Misstatements can lead to denied claims or canceled policies.
- Review exclusions and endorsements, such as additional insured status for clients.
- Check insurer ratings and complaint history. Consumer and regulatory information is available at naic.org.
- Pay attention to claims-made vs. occurrence terms, if relevant.
- Keep your certificate handy for clients and landlords.
Ways to Lower Your Premium
- Bundle policies in a BOP.
- Raise your deductible if you can afford it.
- Maintain a safe workplace and document safety procedures.
- Pay annually rather than monthly if possible.
- Review classification codes to make sure you are rated accurately.
- Shop around at renewal.
- Implement risk management, such as contracts, waivers and training.
Related Coverage to Consider
- Professional liability (E&O). For advice and services.
- Workers’ compensation. Required in most states if you have employees.
- Commercial property.
- Business auto.
- Cyber liability.
- Umbrella coverage, which extends your limits. See umbrella insurance for the personal version, and ask about commercial umbrella options.
- Product liability, if you sell physical goods.
How Insurance Fits With Your Business Structure
Forming an LLC can protect your personal assets from business debts, but insurance protects the business from the cost of claims. They work together. Learn more in how to start an LLC. Insurance premiums are generally deductible as a business expense. See tax deductions for the self-employed.
What to Do If a Claim Occurs
- Document the incident with photos and witness details.
- Notify your insurer promptly.
- Do not admit fault or promise payment.
- Cooperate with the investigation.
- Keep records of communications and costs.
- Refer legal documents to your insurer immediately.
Common Mistakes
- Assuming a homeowners policy covers business activities.
- Buying too little coverage.
- Not reading exclusions.
- Not updating the policy as the business grows.
- Missing renewal dates.
- Ignoring contract requirements, such as additional insured endorsements.
Real-World Examples of Covered Claims
Examples make coverage easier to understand. A customer trips over a loose floor mat in your shop and breaks a wrist, and the policy can pay the medical claim and your defense costs. A painter spills a can of paint on a client’s hardwood floor, and the policy may cover the repair. A competitor claims your advertising copied their slogan, and personal and advertising injury coverage may respond. In each case, the cost of a single incident can exceed a year of premiums, which is why even tiny businesses treat this coverage as a basic operating cost.
Certificates of Insurance and Additional Insureds
Clients often ask for a certificate of insurance, a one-page summary of your policy limits and dates. Some also ask to be listed as an additional insured, which extends certain protections to them for work you perform. Your agent can usually issue certificates the same day, and many carriers provide them through an online portal. Make sure you understand the wording of any additional insured endorsement, since extra endorsements can carry extra charges. Keep copies of every certificate you issue, along with the contract that required it.
Reviewing Your Policy Each Year
Your risks change as your business grows. Revisit your policy each year to confirm that your revenue, payroll, services and locations are reported accurately. Underreporting can cause an audit surcharge or even a denied claim, while overreporting raises premiums. A short annual call with your agent keeps the coverage aligned with reality.
Frequently Asked Questions
Is general liability insurance required by law?
Generally not, but landlords, clients and licensing boards often require it.
Does it cover my employees?
It covers claims against your business from third parties. Employee injuries fall under workers’ compensation.
What is the difference between GL and professional liability?
General liability covers physical injury and property damage. Professional liability covers mistakes in the services you provide.
Can freelancers get it?
Yes. Many freelancers buy GL, often combined with professional liability.
Bottom Line
General liability insurance is a basic safeguard for most businesses. It helps pay for common third-party claims and legal defense. Evaluate your risks, compare quotes and combine coverages to fit your business.
Related guides
- How to Start an LLC: Steps, Costs and Common Mistakes
- Small Business Loans: Types, Requirements and How to Apply
- Tax Deductions for the Self-Employed: A Practical Checklist
- How Much House Can I Afford? A Realistic Budget Guide
This article is for general education only and is not financial, tax, legal or insurance advice. Rates, limits and rules change, so confirm current details with the provider or a licensed professional before you decide.