When you’re starting a new company, there are lots of questions to answer and decisions to make. One important consideration is what kind of business insurance you should have. Depending on your industry, you might need general liability insurance, professional liability insurance, or both. The professional liability versus general liability insurance dilemma has puzzled more than a few new business owners, so it’s smart to get a handle on this issue nice and early.
In short, general liability insurance covers claims based on bodily injury or third-party property damage. On the other hand, professional liability insurance, covers issues that lead to third-party financial or other losses, such as malpractice insurance for doctors and lawyers.
This overview will help you determine which insurance types are right for your business.
General business liability insurance and what it covers
General business liability insurance will protect your company if your business or employees are sued for causing injury, property damage, or reputational harm to a third party. The insurance can cover legal costs, like settlements when someone is injured on your property.
All small business owners should consider carrying general liability insurance. If someone files a lawsuit against your company and wins, the settlement could eat into your resources—or bankrupt the company entirely. Legal fees and settlement costs, especially for injuries, can be astronomical.
Instead of paying out of your company’s pocket, your insurance policy will cover a certain amount (depending on your policy). While you still may end up paying some costs out of pocket, the financial burden is significantly reduced.
General business liability insurance covers scenarios like:
- Injury claims and medical bills: If someone is injured on your property, they may sue to recover damages for their medical bills and other financial losses. (This does not include employees. Workers’ compensation insurance covers on-the-job injuries and occupational illnesses.)
- Property damage: If you or an employee cause third-party property damage, general liability insurance can cover the costs. A common example is when an employee damages someone else’s property while doing company business.
- Advertising errors: General liability insurance can cover issues like copyright infringement in advertising, and other situations which may arise.
- Reputational harm: Finally, if your company is accused of libel, slander, malicious prosecution, privacy violations, wrongful evictions, or other types of reputational harm, your insurance policy could cover the expenses.
Professional liability insurance for businesses and what it covers
Professional liability insurance protects your company if a client or patient files suit over a mistake or error. Malpractice insurance alongside errors and omissions insurance are two common subtypes of professional liability insurance.
If you provide a service to clients, consider professional liability insurance—especially if you’re in a particularly litigious industry. Some professions require this kind of insurance.
Generally, professional liability insurance protects businesses against lawsuits for financial losses. (Medical malpractice insurance and policies for architects and engineers are the exception to this rule. They may also cover bodily injury.)
Examples of lawsuits include:
- Professional negligence: Many professions have elevated duties of care. For instance, doctors have a higher duty of care to a patient due to their specialized training. If a client accuses your company of professional negligence, professional liability insurance can cover the associated legal fees and potential settlement.
- Breach of contract: Breaching a contract can lead to significant financial losses for either or both parties.
- Failure to deliver: When a business fails to deliver a promised service on time, clients may file suit.
- Errors and omissions: Mistakes happen, even when you’re at the top of your field. If you fail a client in some way and they file a lawsuit, your insurance company can help cover those costs. Note that errors and omissions insurance may also cover breach of contract and failure to deliver, so be sure to read the policy carefully.
It’s also important to find out whether your state or profession requires certain types of insurance. For example, some states require real estate agents to carry errors and omissions insurance.
Do you need both?
Because these two policy types cover different risks, you may wonder if you need both. Remember, general liability insurance covers medical harm, property damage, advertising errors, and reputational harm, while professional liability insurance covers disputes over the quality of service.
First, find out whether you’re required to carry either or both types of insurance. Your state or industry may have requirements already. In other cases, other parties may require you to carry insurance. For instance, if you lease commercial property, your landlord may require general liability insurance, even if it’s not required by law. Similarly, clients may make professional liability insurance a contractual obligation.
If you have a retail or office location, general liability insurance is a good idea. The average slip-and-fall claim is $20,000, while reputational harm lawsuits average $50,000. Paying those costs out of pocket could devastate your business.
Companies offering services—such as real estate agents, accountants, lawyers, doctors, and web designers—should carry both general liability and professional liability insurance. However, if you perform one of these services from home and don’t use advertising or marketing, you may not need to spring for general liability.
When in doubt, it’s always wise to ask colleagues in your industry how they handle insurance issues.
Is there a difference in cost between professional liability versus general liability insurance?
The cost of professional liability versus general liability insurance largely varies on the policy amount, as well as several other external factors.
Small businesses often choose “standard” general liability amounts. This is usually $1 million per occurrence and $2 million aggregate policy limits. That translates to $1 million in coverage for a single claim, and a $2 million limit for all claims during that policy period. The period is usually one year. This costs anywhere from $25 to $42 per month, on average.
Factors affecting cost include the type of business, building size, location and condition, your business’s claims history, and the specific policy details.
Professional liability insurance depends on the type of business, the industry, the policy amount, and specific coverage details. External factors may include the business size, how employees are trained, your contract language, location, and claims history. It’s worth looking for professional resources within your industry’s governing boards and associations. Once you have an idea of what you can expect to spend, and how much coverage you’ll need, call different insurers to get individual quotes.
Find the right insurance—and the right small business bank
Choosing insurance policies can seem complicated, especially if this is your first time managing your own company. Calling different insurance providers for quotes and advice can help you determine which policies—and which carriers—are right for you. Having sufficient insurance coverage can make the difference in whether your company survives setbacks.
By now, you should have an idea of how professional liability versus general liability insurance will affect your business. Whichever type of insurance policies you take out, having a good financial institution on your side can make a real difference. A great bank will help you keep track of expenses and plan for your financial future. NorthOne offers robust digital small business banking services geared toward new and established small businesses.
