How to estimate how much liability insurance coverage you need
To help assess your business insurance needs, ask yourself:
1. Do your clients or contracts have insurance requirements?
Make sure your insurance meets any requirements from landlords, vendors or clients. Contracting with big clients or government agencies may require you to carry higher limits. In some industries like construction, $2 million or more may be the standard.
2. Is the work you do risky?
Look at what kind of physical work you do, your exposure to things like heat or chemicals, how you operate and what could go wrong. Some businesses naturally carry more risk. For example:
- A general contractor working on construction sites likely faces more risk than an e-commerce store owner working from home.
- A gym or daycare center with lots of physical activity and daily visitors has a higher chance of accidents than a desk-centered IT consultant.
- If your industry involves physical labor, heavy equipment, preparing or serving food or interacting with the public, you might need higher limits.
3. Do you work in high-risk areas?
If you run your business around lots of people and property, such as on-site at a client’s home or in highly-trafficked areas, your higher risk could mean you need more insurance.
The more people who come in and out of your door also increase the chance of an accident. For places like retail shops, salons and restaurants even one incident could lead to a costly claim.
For example: On a commercial job site, an employee accidentally damages a client’s electrical system.** If the repair costs plus legal fees top $500,000, your business would be responsible for any costs not covered by commercial general liability.
4. Who’s your customer base?
Do you work with the public? Kids? High-end client properties? The more interaction you have with the public, the more insurance you could need.
Imagine if a customer trips over a display in a busy retail store and suffers an injury. They could sue for $500,000 in medical expenses and lost wages. If you only have a $300,000 limit per claim, you’d be on the hook for the rest.
5. Is your business growing?
When your business scales up, so do the stakes. Higher revenue and more customers or vendors can often mean more exposure and opportunity for something to go wrong. And if you’re bringing in more income, you likely have more to protect.
6. Do you have a history of insurance claims?
If you’ve had past claims — or even close calls — it might be a sign to increase your coverage. A higher coverage limit can help provide more peace of mind.
7. Are you in an area with higher legal costs?
If you work in a high-claim state, more coverage may be wise. Claims can get expensive fast if your business is based in an area with a higher cost of living — or where lawsuits are more common.
For example, States like Delaware, New York, and Florida are known for higher legal costs and activity.
Is a $1 million General Liability policy enough coverage?
Many small business owners buy a general liability policy with $1 million in coverage per-occurrence limit and $2 million total for the year (called the aggregate limit). This means that:
- The insurance company may pay up to $1 million for any single occurrence on your insurance as long as the coverage is in effect (active). That’s the per-occurence limit.
- Your insurer won’t pay more than $2 million total in claims, regardless of the number of occurrences, during the policy’s one-year term. That’s the aggregate limit.
$1 million is often the minimum amount on a policy required by many commercial leases or vendor contracts. And for low-risk businesses like consulting, photography, or small retail shops, this may be enough coverage.
But it’s not enough for everyone. If your business faces higher risks or deals with more people, property or expensive assets, you may need more.
Commercial umbrella insurance adds extra coverage on top of your existing general liability limits. Here’s how it works: After your general liability coverage limit has met its maximum, business umbrella insurance can increase the limits of your ERGO NEXT general liability policy up to a $4 million aggregate limit of liability per year.
Note that in some cases, umbrella insurance can be required to meet contractual requirements.
