If you’re a small business owner, buying liability insurance can be a confusing endeavor. You may be offered multiple options, including general liability and professional liability insurance. Should you buy one or both?
The answer depends on the type of business you operate. Virtually all businesses need general liability insurance, but only some need professional liability coverage. The two coverages are distinct, and neither is a substitute for the other.
- Most businesses need general liability insurance but only some need professional liability insurance.
- General liability and professional liability insurance serve different purposes. The former covers claims for bodily injury and property damage, while the latter covers claims for financial losses resulting from your professional negligence, errors, or omissions.
- While most general liability policies are written on occurrence forms, professional liability policies are usually claims-made.
General liability insurance is a generic product that can meet the needs of many types of businesses. Professional liability policies are more specialized, as each is designed for a specific type of business professional, such as physicians, architects, or real estate agents.
What Is General Liability Insurance?
General liability insurance covers many claims commonly filed against businesses, like slip-and-fall and property damage claims. It can be written alone or combined with other coverages in a package policy. General liability insurance includes three types of coverage: bodily injury and property damage liability, personal and advertising injury, and medical payments.
Bodily Injury and Property Damage Liability
As its name suggests, bodily injury and property damage liability covers claims against your business for bodily injury or property damage caused by an occurrence (accident). It pays for damages your firm is legally obligated to pay to a third party, if necessary. It also covers the cost of defending your business against a lawsuit.
Bodily injury and property damage liability covers injury or damage that occurs on your premises or that arises from operations you perform at a job site. For instance, it will cover a claim by a customer who was injured on your premises by a ceiling tile that fell on his head. Likewise, it will cover a customer’s claim for the cost of repairing a statue broken by an employee of your janitorial business while cleaning the client’s premises.
Besides premises and operations claims, bodily injury and property damage liability also covers claims against your business for bodily injury or property damage caused by a product you manufacture or sell or work you’ve completed. For example, suppose your company manufactures glassware. A shopper files a claim against your business for an injury that occurred when a wine glass made by your firm shattered in her hand. Your general liability insurance should cover the claim.
Small businesses pay a median cost of $500 per year for general liability insurance and $713 for professional liability.
Personal and Advertising Injury Liability
Personal and advertising injury liability covers claims against your business that result from any of the seven types of offenses described in the policy. The covered offenses are unlawful violations of someone’s rights. They include acts like libel, slander, false arrest, copyright infringement, and violation of the right to privacy.
Here’s an example of a typical claim. You own a popular restaurant in a resort town. A restaurant similar to yours opens two blocks away. To discourage your customers from visiting the new eatery, you write a blog post on your website falsely claiming the new restaurant is infested with rats. That restaurant’s owner sues your business for libel, alleging your rat claim was false and that your post caused her business to lose revenue. The claim should be covered by your general liability insurance.
Medical payments differs from the two coverages outlined above in that it’s not based on fault. It pays for medical expenses incurred by third parties for injuries suffered in accidents on your premises or as a result of your operations. The injured parties can be compensated for their expenses simply by filing a claim. They need not prove that your business is liable for their injuries. The standard limit for medical payments coverage is $5,000 per person, but the limit can be increased to up to $25,000.
What Is Professional Liability Insurance?
Professional liability (also called errors and omissions, or E&O) insurance covers claims against your business for negligence, malpractice, errors, or omissions you made while providing a professional service. Claims typically seek compensation for financial losses rather than physical injury or damage. Businesses need professional liability if they have specialized training or education to offer advice or provide a service. Examples are architects, physicians, engineers, and financial advisors.
There are many types of professionals, and each has a unique set of risks. Consequently, professional liability policies are generally specialized for a certain kind of professional.
When buying professional liability insurance, be sure the policy covers the type of business you operate. For instance, if you own an architecture firm, you’ll need a policy designed for architects. If you own a massage therapy business, you’ll need a policy tailored to massage therapists.
Which Is Better for My Business?
Most businesses need general liability insurance but only some need professional liability insurance. General liability and professional liability coverages are not interchangeable, as they serve different purposes. One isn’t better than the other.
General liability insurance provides basic coverages that most businesses need. It’s a generic insurance product that can be modified by endorsements to meet the needs of a broad range of businesses in many types of industries. Professional liability insurance is usually designed for a specific type of trade or business.
Some insurers will provide general liability and professional liability insurance in a business owners policy or other bundled policy.
Most general liability insurance is written on occurrence forms, which cover injuries or damage that occur during the policy period. Claims may be filed anytime during the policy period or after the policy has expired. Professional liability policies are usually written on claims-made forms, which limit coverage to claims made during the policy period. With a few exceptions, claims-made policies don’t cover claims filed after the policy has expired.
Some insurers may offer certain types of professional liability insurance on occurrence forms. When available, these forms are generally preferable to their claims-made counterparts.
Frequently Asked Questions (FAQs)
Do I need both general liability and professional liability insurance?
Most businesses need general liability insurance. If you have specialized training to provide a service or advice to others, you probably need professional liability insurance as well.
What is the difference between malpractice insurance and professional liability insurance?
Malpractice insurance is a type of professional liability that’s designed to cover medical professionals or attorneys. The term “professional liability insurance” has a broader meaning. It refers to any insurance that covers claims for negligence, malpractice, errors, or omissions you made while providing a professional service.
Is professional liability the same as general liability?
No. As discussed earlier, these two types of business insurance differ in the types of risks they each cover. General liability covers physical risks, such as bodily injuries and property damage. Professional liability covers more abstract risks, such as errors and omissions in the services rendered by your business if you have a professional specialty.