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Understanding General Liability Insurance

A Guide to General Liability Insurance

Today’s society is increasingly litigious, and even small missteps can result in large lawsuits. Therefore, general liability insurance (and property and worker’s compensation insurance) is critical for companies. Liability insurance protects a company’s assets if it is sued for causing property damage or personal injury.

You can purchase general liability on its own or as part of a business owner’s policy, or BOP. BOPs bundle liability and property insurance into a single policy. However, be aware that the liability coverage limits in BOPs are generally low, so if your business needs more liability coverage, you may have to purchase it as a separate policy.

So how do you decide how much coverage your business needs? It usually depends on a couple of factors:

How Does General Liability Work?

General liability policies detail the maximum amount that an insurer will be responsible for paying during the period when the policy is active. Such policies also usually list the maximum amount an insurer will pay per occurrence. The insured business would be responsible for any amount above that maximum. So, if a business with a $2 million occurrence cap in its liability insurance policy were to be successfully sued for $2.5 million, the insurer would pay the $2 million, leaving the company responsible for the $500,000 balance.

Some companies choose to purchase umbrella liability insurance to cover such situations. Umbrella insurance picks up where general liability coverage ends, covering payments that exceed the limits on other policies. It also provides additional coverage for any liabilities that standard liability policies do not cover.

If an accident occurs that may lead to a liability claim, most insurance companies require policyholders to report it as soon as possible. At that point, the insurer may instruct the business owner to: document the accident and any other relevant information, to forward any legal notices to the insurer, and to cooperate fully in any investigations arising from the accident.

To keep liability and other insurance rates down, business owners should take precautions to prevent accidents. Taking steps such as those listed here can lower the potential costs of a liability insurance claim: