10 surprising facts about general liability insurance for small business owners

10 surprising facts about general liability insurance for small business owners

General liability insurance can help protect your business. But too many business owners aren't aware of its full scope, exclusions and hidden nuances and capabilities. And you don't want to be caught unprepared and uninformed if you have to file a claim.

A NEXT survey of 500 small business owners found that 90% of small business owners aren't confident that they're adequately insured. Some policies can include stipulations and limitations. And business owners don't always know all the details.

NEXT highlights some of business owners' biggest misunderstandings around their liability coverage.

1. General Liability isn't all-encompassing

General liability provides coverage for many common business risks, but it doesn't cover every risk. Plus, general liability policies can differ between insurers. "Every carrier is different with exclusions and different coverages offered. Policies can be very tailored," says NEXT's insurance product lead Julia Shen.

Many business owners are surprised to learn that general liability has specific exclusions. For example, general liability won't cover hailstorm damage to a broken window. You would need separate commercial property coverage for some building repairs.

General liability also won't cover your products or inventory after a covered event like a fire. That also falls under commercial property.

Many small business owners prefer BOP insurance (a business owner's policy) to general liability alone for its extra protections against theft, vandalism, fire and more.

2. Products you make might not be covered

If you sell, make, repair or distribute physical items for your retail or e-commerce business, product liability insurance can help your small business with legal fees if a customer claims your product caused them injury or damaged their property.

Some providers include product liability coverage with general liability, but that isn't always the case with all insurance carriers. And some products or services might be excluded from coverage or require a separate rider.

Read your policy and check with your insurance provider about exclusions and to see if product liability is included with your commercial liability coverage.

3. Policies may have location restrictions

General liability policies can have a geographical restriction, often called a "coverage territory." This defines restrictions around where the policy is valid. And this means some policies might not cover incidents outside of a specific location.

Most general liability policies cover claims within the United States and its territories. Some may extend coverage globally, but certain conditions usually apply.

Review the coverage territory clause in your policy to make sure it makes sense with your business operations. If you do business outside your home state or internationally, you can often buy additional coverage (called an endorsement) to expand your coverage territory.

4. You may need higher coverage limits than you think

Have you received a contract, earned a professional license or signed a commercial lease that required you to have liability insurance? You might have been surprised by the amount of coverage required. But even then, these default coverage limits may not be enough.

Small business owners often underestimate the amount of coverage they need. The standard $1 million per occurrence limit may seem high, but a lawsuit could quickly exceed that amount. If a visitor suffers an injury because your restaurant didn't put a mat on a wet floor, legal and medical costs could push the claim beyond your policy's limits.

Commercial umbrella insurance could help to increase your policy limits.

5. General liability can cover more than physical injury

Many business owners associate general liability insurance only with physical injuries or property damage. But it can also protect against intangible claims.

"Personal and advertising injury is also typically covered. There is often limited coverage for medical payments and damage to rented premises," Shen reminds us.

Personal injury coverage usually includes issues like libel, slander, defamation and invasion of privacy, which can arise from marketing or business interactions. Advertising injury coverage can protect against claims of copyright infringement, trademark misappropriation or plagiarism in advertising materials.

For example, say a photographer sues you for using a copyrighted image in your advertising campaign without permission. Your general liability policy may help cover legal fees and settlements.**

6. Contractual obligations aren't usually covered

If your business is in contract with a vendor and you have a dispute, your general liability insurance probably won't cover any losses related to the dispute.

Many business owners are surprised to learn that general liability insurance doesn't cover contract disputes or claims related to breach of contract.

If your business relies on a lot of contracts and you're at risk for contractual disputes, consider professional liability insurance (sometimes called errors and omissions insurance), which can help cover claims of negligence and misrepresentation that could lead to contractual disputes.

7. Your liability insurance won't cover intentional harm

Most general liability insurance policies explicitly exclude coverage for intentional acts that cause damage.

If you or your employee causes harm on purpose, you may not be covered by your general liability policy.

8. Cyber liability is a separate policy

Data breaches or cyberattacks don't fall under general liability protections. They require separate cyber liability insurance.

However, if a customer or technician trips over exposed cables during emergency computer maintenance, their physical injuries or property damage may be covered.

9. Home-based businesses also need general liability

Many home-based business owners often assume their homeowners' insurance will cover business-related claims. But most homeowners' policies exclude liability for business activities.

For example, if a client visits your home office and suffers an injury, or if your business activities cause property damage to a neighbor, your homeowners' insurance likely won't cover the claim.

General liability insurance specifically addresses these risks, helping to protect against lawsuits or financial losses arising from home-based operations.

10. Poor recordkeeping can negatively impact your claim

It's essential to keep accurate records for an insurance claim because insurance providers need detailed documentation to validate claims.

Documentation may include things like incident reports, contracts, receipts and proof of compliance with safety measures. Without these records, claims may be delayed or denied due to insufficient evidence.

Let's say a customer says they got hurt at your office and they wanted help to pay for their medical care. If you can't provide an incident report, safety records, receipts for safety improvements or surveillance footage the insurance company may have difficulty properly investigating the claim.

Maintain organized records for a smoother claims process and to reduce the risk of claim delay or denial.

This story was produced by NEXT and reviewed and distributed by Stacker.