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How to choose commercial liability insurance for your business

How to choose commercial liability insurance for your business

By Wil Chan
Jun 14, 2022
7 min read

When it comes to insurance, you want to protect against two types of events: things that happen to you and things that happen to other people because of you.

Think about how some kinds of car insurance protect you when you get hurt, while other kinds pay the bills if you hit someone else. 

We call that second kind of coverage “liability insurance.” It protects against losses, damages or injuries that you — the insurance holder — may have caused.

Commercial insurance, also known as business insurance, follows a similar logic. Some commercial insurance covers things that happen to your business. But other kinds of insurance, which we group under the term “commercial liability insurance,” protect against losses, damages or injuries that your business may have caused someone else

That could mean anything from someone else getting hurt on your job site to a client who’s unhappy with your work. 

Not all kinds of commercial liability insurance are the same. As a small business owner, you’ll likely benefit from commercial liability insurance customized to your needs. 

Here’s our guide to understanding the types of commercial liability insurance out there, and when to choose them. 

General liability insurance

Most small business owners start with commercial general liability insurance (CGL) because it helps protect against the most common liability risks they tend to face, up to policy limits.

This type of coverage can protect you if you’re held responsible for an injury to someone other than your employees at your workplace — aka bodily injury — or for property damage.

For example, if a visitor to your business trips over an extension cord and ends up with hospital bills, your general liability coverage could help with the costs.

If a client accuses you of libel, slander (advertising injury) or copyright infringement, general liability insurance can help pay for a legal defense and settlements or judgments that may be awarded if you’re found liable.

Note that general business liability insurance only applies in cases where the damage was to a third party — meaning, not to you, your business or one of your employees. Other types of insurance can help in those situations.

Professional liability insurance

Professional liability insurance is also known as errors & omissions insurance (E&O). 

While general liability can cover you when there's an accident, professional liability coverage helps in cases where you are accused of making a mistake while offering professional services. 

For example, if you are a fitness instructor and you told a client to do something that caused her to get injured, you might be accused of making a professional error or professional negligence. In this case, professional liability coverage can help pay for legal fees. 

This kind of insurance covers settlements and judgments if you’re determined to be at fault. And it helps pay for legal, court and defense costs against a claim — even if you didn’t do anything wrong.

Commercial auto insurance

If you use a vehicle for your business, commercial auto insurance can provide coverage that is not available with personal auto insurance. It's often required by state law if you have vehicles registered under your business. 

Commercial auto insurance might have higher limits and cover different types of risks than your personal auto insurance. It can also cover multiple drivers and a larger geographic area. 

Learn more about the differences between personal auto and commercial auto insurance.

What’s not commercial liability insurance — but is still important

As we’ve just discussed, commercial liability insurance protects you when your business may be responsible for something happening to someone else. 

But it's just as important to protect against things happening to your business. These kinds of insurance can help:

Commercial property insurance

Commercial property insurance helps protect all the physical items needed to operate your business: inventory, business equipment and furniture and physical structures. It also covers any improvements or upgrades you make to your workspace.

You may think you only need property insurance if you own the building. However, even if you lease or rent a space, you may want business property insurance to cover what’s inside of it.

When you combine property insurance with a CGL insurance policy, it is called a “business owners policy” or BOP. Typically, combining multiple policies into one package is usually less expensive than buying the coverage separately.

Workers' compensation insurance

If you have employees, most states require you to have workers' compensation insurance, also known as “workers’ comp.” This can help cover the costs of medical expenses and lost wages if an employee of yours is hurt on the job.  

For example, if you're a contractor and one of your workers hurts their back while lifting a heavy item, workers’ comp might be able to cover their medical expenses.

In some states, workers’ comp can also cover you, the business owner — even if you’re a sole proprietor. In these cases, workers’ comp can help you in cases that aren’t covered by your health insurance.

Tools and equipment insurance

If you rely on tools for your work, then tools and equipment insurance can help pay to repair or replace your equipment if it’s damaged, lost or stolen. You can add this type of coverage to your general liability policy.

How much is commercial liability insurance?

There’s no easy answer or a “typical” cost for commercial liability insurance. The cost is based on several factors, such as the type of business risks you face and the amount of coverage you want. You can often save by combining multiple kinds of coverage.

In general, insurance costs more for businesses in industries considered more dangerous. Companies with more employees also typically pay more than businesses with fewer employees.

The best way to get an accurate estimate is to complete an application and get a quote customized to your business needs. 

NEXT makes protecting your small business easy

Our mission is to help small businesses thrive, so we offer customized packages tailored to meet the insurance needs of each small business we serve.

Simply answer a few questions, choose the package you need and get your certificate of insurance in 10 minutes or less.

If you have questions, our licensed, U.S.-based insurance advisors are ready and waiting to help.

Get an instant quote now.

How to choose commercial liability insurance for your business

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About the author
Wil Chan is a content writer at NEXT and has been a professional writer for more than ten years. His work has been featured in publications including Forbes and Greatist. He has run a freelance business since 2016 and feels passionate about helping self-employed people in all industries succeed.
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