General liability insurance is essential for all businesses. General liability insurance protects the assets of a business when the business is sued for something it did or didn't do to cause an injury to someone or to cause damage to someone’s property.
General liability insurance can be purchased separately or as part of a business owner's policy often called a BOP. A BOP bundles property and liability insurance into one policy. Businesses that need more coverage than the BOP offers or that have the type of business that does not qualify for a BOP usually purchase general liability insurance as a separate policy or a commercial package policy.
The amount of coverage a business needs is hard to say. You have no way of knowing how much money you can be sued for. Business owners should first consider the amount of risk associated with their business. A business that manufactures heavy machinery is at a greater risk of being sued than a company that manufactures plates and would need a higher limit of liability insurance.
Under a general liability insurance policy, the insurance company is obligated to pay the legal costs associated with a covered liability claim or lawsuit. Covered liability claims include bodily injury, property damage, personal injury, and advertising injury which is damage from slander or false advertising. The insurance company also covers compensatory and general damages. Punitive damages are never covered under general liability insurance policies because they're considered to be punishment for intentional acts.
General liability insurance policies always state a maximum amount that the insurance company will pay during the policy period. Sometimes the maximum they will pay is per project instead of per policy period. The policy will also list the maximum amount the insurer will pay per occurrence. For example, if a company has a $1 million per occurrence limit in its liability policy and there is a judgment for $1.2 million, the insurer would pay $1 million. The business would then be responsible for paying the additional $200,000.
To cover these types of situations, you may consider purchasing an umbrella insurance policy. This type of liability policy picks up where the general liability insurance coverage ends. An umbrella liability policy covers payments that exceeds the liability in underlying policies, and provides additional coverage for liabilities not covered in a standard general liability insurance policy.