Pas Trustednews – General Liability Vs. Professional Liability Insurance

A small business can face several types of legal woes, such as lawsuits about accidental injuries, property damage, slander, negligence and accusations of giving inaccurate professional advice.

There are two types of liability insurance that can cover these types of problems: general liability insurance and professional liability insurance. A good small business insurance plan often has both.

What Is General Liability Insurance?

General liability insurance is a type of small business insurance that covers your company for accidental property damage and injuries to others. It also covers your legal costs for problems such as reputational harm, advertising injury and copyright infringement.

General liability insurance is also known as business liability or commercial general liability insurance.

What Does General Liability Insurance Cover?

General liability insurance covers your small business against a wide range of potential claims, including:

  • Bodily injury: This covers accidental injuries to others (not including your employees). For example, if a customer slips on a wet spot in your shop, this would cover their medical bills and your legal costs if you get sued.
  • Property damage: This covers accidental property damage to others. For example, if you accidentally knock a hole in your client’s wall while at a job site, this coverage will pay for repairs.
  • Copyright infringement: This covers claims that your business has used someone else’s intellectual property in advertisements or other marketing materials without proper authorization.
  • Advertising injury: This covers claims that your promotional materials or other marketing campaigns might defame another person, company or business owner.
  • Reputational harm: This covers claims that you say something negative that could hurt another person or business, such as a statement given during a news interview.

How Much Does General Liability Insurance Cost?

The average cost for general liability insurance is $42 per month, according to Insureon. Nearly one-third (29%) of Insureon small business policyholders pay less than $30 per month for general liability insurance.

The amount you’ll pay for coverage hinges on several cost factors, such as:

  • Level of risk in your industry: Operating within a high-risk industry, such as construction, can lead to more expensive general liability insurance premiums.
  • Business ZIP code: Establishing your company in a densely populated area such as a downtown area heightens the potential for claims. That can make coverage more costly.
  • Age of the business: Newer companies with limited industry experience may face higher insurance rates.
  • Coverage details: Your choice of policy limits and deductibles can impact the overall cost of your insurance. Opting for both higher policy limits and smaller deductibles typically increases coverage costs.
  • Claims history: A business that has filed few or zero claims in the past will likely have lower insurance costs.

Who Needs General Liability Insurance?

As a business owner, general liability coverage is worthwhile if your business:

  • Frequently deals with the public, vendors or clients.
  • Engages in advertising or promotional activities.
  • Hires temporary workers.
  • Uses social media.
  • Requires coverage for contractual obligations.
  • Conducts business activities at third-party locations.

Examples of businesses and workers who can benefit from general liability insurance include:

  • Accounting firms
  • Construction businesses
  • Contractors
  • Consultants
  • Cleaning services
  • Financial services
  • IT/ technology businesses
  • Landscaping services
  • Manufacturers
  • Media and advertising services
  • Real estate agents

What Is Professional Liability Insurance?

Professional liability insurance is a type of small business insurance for claims against you about professional mistakes, even if the claim has no merit. For example, if you are an accountant and give misleading information to a client and they lose revenue because of it, and the client sues you, professional liability would pay your legal costs.

Professional liability is also called errors and omissions insurance (E&O).

What Does Professional Liability Insurance Cover?

Professional liability insurance covers your legal expenses for professional errors, including judgments and settlements. It also covers other types of fees, such as licensing board penalties.

Here are some examples of professional errors that could result in a lawsuit.

  • Copyright infringement: A marketing agency inadvertently incorporates a copyrighted image in their work without obtaining proper permission.
  • Inaccurate advice: An accountant provides advice that leads to a hefty client tax bill.
  • Misrepresentation: You fail to complete a project on time and your client is not able to open their business, resulting in lost income.
  • Negligence: An attorney neglects to submit a client’s complaint within the statute of limitations, resulting in the client facing financial setbacks, including legal expenses and potential award losses.
  • Violation of good faith and fair dealing: A real estate agent withholds vital information from a homebuyer.

How Much Does Professional Liability Insurance Cost?

The average cost of professional liability insurance is $61 per month, according to Insureon. Nearly one-third (32%) of Insureon small business policyholders pay less than $50 per month for professional liability insurance.

The price you pay for coverage depends on several factors, including:

  • Industry your business is in: The type of business you have will impact your professional liability costs.
  • Industry experience. Many insurance companies view businesses with less experience as a greater risk. This can lead to higher insurance costs for you.
  • Business location: The geographical location of your business can influence insurance expenses. Residing in a state with elevated legal expenses may result in higher premiums for your professional liability insurance.
  • Coverage details: The coverage limits and deductibles you select also impact premium costs.
  • Number of employees: As your team expands, the costs associated with professional liability insurance tend to increase. This is because of the greater likelihood of errors occurring when you deliver services with a larger workforce.
  • Claims history: Many insurance carriers increase their costs for businesses with a history of claims.

Who Needs Professional Liability Insurance?

For certain professions, you may be required to buy professional liability insurance if your state’s licensing board requires it. For example, in some states insurance agents are required to have professional liability insurance or they could have their license suspended or revoked.

But even if you’re not required to have professional liability insurance, it’s worth considering. Without it, you would have to pay for legal expenses out of pocket if you get sued for a professional mistake. Here are some examples of businesses that could benefit from professional liability insurance:

  • Accounting firms
  • Consultants
  • Counselors
  • Graphic designers
  • Health care professionals
  • Insurance agents
  • Investment advisors
  • Marketing professionals
  • Financial advisors
  • Real estate agents
  • Personal trainers
  • Tax preparers
  • Technology professionals

Similarities Between General Liability and Professional Liability

Key similarities between general liability and professional liability insurance include:

  • Both cover your business from lawsuits. Running a business means you run the risk of being sued and you might face steep costs related to legal expenses. Both general liability and professional liability will cover your legal expenses for certain types of problems, like accidents and mistakes.
  • Both fulfill client contract requirements. Some clients might require that you have one of these types of coverage. For example, in construction, general contractors often require subcontractors to have general liability insurance.

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Differences Between General Liability and Professional Liability

Here are a two key differences that set these coverages apart:

  • The type of risks that are covered. General liability insurance covers your business from accidental property damage and injuries to others, copyright infringement, advertising injury and reputational harm. Professional liability insurance covers your business for professional mistakes, such as inaccurate advice and violation of good faith and fair dealing.
  • General liability insurance covers physical harm. General liability insurance pays for accidents that cause physical harm, such damaging a client’s hardwood floors or a client who slips in your store. Professional liability insurance covers financial losses, such as a client who lost revenue due to inaccurate advice.

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