When you own a business, you always face the risk of something bad happening, and that something could be costly.
The biggest risks most small businesses face include:
- Injuries to clients, customers, employees, and visitors
- Harm to someone else’s property while working at their business or home
- Issues with advertising and things you say.
What most business owners don’t realize is that two relatively simple and common types of insurance — general liability and workers’ compensation — can cover so many of the risks that keep them up at night.
In this article, we’ll explain the differences between general liability and workers’ compensation insurance and how, when a business has both of them, is protected against so many major risks. We’ll also suggest some additional coverages that can protect you against even more common threats to your business.
- What is general liability insurance and what does it cover?
- What is workers’ compensation insurance and what does it cover?
- What are the similarities between general liability and workers comp insurance?
- What are the differences between general liability and workers comp insurance?
- Other small business insurance coverages
What is general liability insurance and what does it cover?
General liability insurance covers certain damages that you are liable for that are related to your business location, operations, or products you make or sell. It covers direct expenses, along with legal and settlement costs, if your business is sued. Legal costs are covered even if you’re found innocent or are the victim of a frivolous lawsuit.
Here are the types of things general liability insurance covers:
- Visitor injuries: If a client, customer, delivery person, passerby, or anyone but an employee is injured on your business property, general liability will cover medical costs related to it. Examples:
- A client trips in your lobby and breaks a leg.
- A customer is struck by a forklift, falls, and suffers a concussion.
- A delivery person slips on a newly washed floor and hurts her back.
General liability insurance will pay for healthcare and other costs to help the injured person recover.
- Client property: General liability will pay to repair damage to a client’s property that happens when you or an employee is doing work at their home or business. Examples:
- An employee breaks a valuable antique vase while making a delivery to a client’s home.
- You accidentally flood a client’s basement when replacing a pipe.
- A worker wipes out a customer’s rose garden while trimming a nearby tree.
In all these situations, general liability will pay expenses to make things right up to policy limits.
- Damage because of faulty work. If you or an employee completes work on a client’s home, the work turns out to be faulty, and results in property damage, general liability insurance will help pay for repairs. The simplest example of this: Your business does roof repairs on a client’s house. The repaired area leaks and causes a ceiling to cave in. General liability covers the ceiling repairs. (You will likely have to pay to redo the original botched roof job out of your own pocket or maybe with professional liability insurance.)
- Product defects. If a product you make or sell has a defect that results in property damage or bodily injury, general liability may cover some damages. This is a tricky area and worth discussing with a business insurance professional. In some cases you may need added product liability insurance.
- Advertising or messaging issues. What’s covered can vary but it typically includes things like copyright violations or publishing something disparaging about another person or business and you’re sued over it because it causes them harm.
In addition to paying direct costs to remedy these situations, general liability insurance can cover the cost of defending you in lawsuits related to these types of claims.
The government does not require businesses to have general liability insurance, but if you rent your business location, your landlord may demand that you get it. Clients may also require that you secure the coverage before you’re allowed to work on their property. If you do subcontracting work, you may need to get it, as well.
What is workers’ compensation insurance and what does it cover?
Workers’ comp covers medical and other costs and provides additional benefits if an employee becomes injured or ill for work related reasons. Some examples include:
- A shop clerk falls off a ladder while stocking shelves and breaks a leg.
- An administrative assistant gets carpal tunnel syndrome because he types on a computer placed on a desk that’s too high.
- A wood worker comes down with lung disease because he’s spent years breathing in toxic fumes in the shop.
Some of the benefits provided by workers’ comp to injured or ill workers include:
- Pays medical expenses, including physical therapy, to recover from work-related injuries and illnesses
- Covers a portion of lost income while an employee is recovering
- Provides short and long term disability if someone is unable to work for an extended period of time
- Retrains workers if they’re unable to return to their jobs
- Pays funeral costs and death benefits to immediate family members if someone dies because of job related reasons.
The good news for business owners is that when they provide workers’ comp coverage, employees forfeit their right to sue if they’re injured or become ill on the job. This is true even if workplace negligence contributed to the injury or illness. These types of lawsuits can be costly and often put companies out of business.
If you have employees, it’s likely that your state requires you to purchase workers’ comp insurance. Rules vary by state, so it’s a good idea to learn about your coverage requirements online on your state’s workers’ comp agency or bureau website or by working with an insurance professional who is knowledgeable about this type of insurance. If you fail to get the required coverage, it could result in significant fines and legal penalties.
What are the similarities between general liability and workers comp insurance?
When it comes to these two coverages, most business owners don’t understand why they need both. They seem similar because they both, in part, offer protection against injuries.
- General liability covers injuries that occur to people who visit your workplace.
- Workers’ comp covers employee injuries and illnesses that happen because of work-related reasons.
Covering injuries is the only thing that makes these two types of insurance similar. They each offer additional coverages and benefits that, when taken together, provide a powerful level of protection to small businesses.
What are the differences between general liability and workers comp insurance?
The main difference between these two coverages is that workers comp insurance covers employees while general liability insurance covers the third-party in your work locations.
Besides that, that provides different coverages that we outlined the details above.
Getting combined general liability and workers’ comp insurance
The easiest way to get these two critical coverages is to start by buying a Business Owners Policy (BOP), which comes with general liability coverage. It also includes business property insurance and business income protection, which pays a portion of your lost revenue if you’re ever unable to operate for a reason covered by your insurance, such as fire damage.
A great thing about a BOP is that it makes it simple to add on additional coverages, including workers’ compensation insurance and any other protection you need. A BOP is typically the simplest and most cost effective way to get all your coverages, including critical business general liability and worker’s comp insurance.
Other small business insurance coverages
At this point, you should be able to see how many of the major business risks you face are covered by the combination of general liability and workers’ comp coverage. Plus, the personal injury coverage isn’t duplicative, because it offers protection to different groups of people that are critical to the success of any business: it’s employees, customers, and other visitors to its business location.
Still, these two types of insurance don’t protect businesses against all the risks they face. Some other types of coverages to consider include:
Business property insurance for small businesses:
Also called commercial property insurance. It covers your business property if it’s damaged by a fire or severe weather event, vandalized, or the victim of a burglary. Learn more at the best commercial property insurance companies.
Commercial vehicle insurance for small businesses:
Commercial auto insurance pays for costs related to injuries, auto repair, and property damage if you or someone who works for you is involved in an accident while driving for work purposes. Personal auto policies don’t cover accidents that happen when you’re driving for job related reasons. Learn more at the best commercial auto insurance companies.
Professional liability insurance for small businesses:
Professional liability insurance or errors and omissions (E&O) insurance: General liability insurance covers certain work-related damages and advertising issues, but the policies typically come with significant limits. It’s worth checking into whether some additional professional business insurance coverage could be a good move for you. Learn more at the best professional liability insurance companies and the best E&O insurance companies.
Cyber insurance or data breach insurance for small businesses:
Hacks against small businesses are becoming increasingly common. Cyber crooks view them as being more vulnerable than bigger organizations. These types of attacks can be costly and often force small businesses to close down. Cyber coverage could help prevent this from ever happening to you. Learn more why all small businesses need cyber insurance; the best cyber insurance companies; and the best data breach insurance companies.
These are just a few coverages to consider. An online business insurance tool, experienced business insurance agent or insurance company representative can advise you on the coverages that are aligned with the unique risks faced by your business.