Understanding General Liability Insurance: A Practical Guide

General liability (GL) insurance is one of the most foundational forms of commercial insurance. It is designed to address common third-party risks that arise from operating a business, such as customer injuries, property damage, or claims related to advertising or reputation.

This guide explains what general liability insurance covers, what it does not, and how to think about coverage limits in real-world business scenarios rather than minimum requirements.

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What Is General Liability Insurance?

General liability insurance is a commercial insurance policy that provides financial protection when a business is legally responsible for bodily injury, property damage, or certain non-physical injuries to third parties.

Coverage typically includes legal defense costs and settlements or judgments arising from covered claims.

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What Problem Does General Liability Insurance Solve?

General liability insurance addresses everyday legal and financial risks that most businesses face, including:

• A customer slipping and falling at your location
• Accidental damage to a client’s property
• Claims that your advertising harmed another party
• Lawsuits alleging injury caused by your operations

Without general liability insurance, even routine incidents can result in significant legal costs and out-of-pocket payments.

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Who Typically Needs General Liability Insurance?

General liability insurance is relevant for:

• Small and mid-sized businesses
• Service providers
• Retailers and restaurants
• Contractors and trades
• Landlords and property owners
• Any business interacting with customers, clients, or the public

Many clients, landlords, or vendors require proof of general liability insurance before doing business.

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How Does General Liability Insurance Work?

At a high level, general liability insurance works as follows:

1. A business purchases a policy with specified limits and terms.
2. A covered incident involving a third party occurs.
3. A claim or lawsuit is filed against the business.
4. The insurer provides legal defense and evaluates liability.
5. Covered costs are paid up to policy limits, subject to deductibles or exclusions.

Coverage depends on the nature of the claim and how the policy defines covered activities.

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Key Coverage Components

Most general liability policies include the following core coverages:

• Bodily Injury
  Covers physical injury to third parties caused by business operations.

• Property Damage
  Covers damage to third-party property caused by the business.

• Personal and Advertising Injury
  Covers claims related to libel, slander, copyright infringement in advertising, or reputational harm.

• Medical Payments
  Covers minor medical expenses for injured third parties without requiring proof of fault.

• Legal Defense Costs
  Covers attorney fees, court costs, and settlements for covered claims.

Defense costs are often paid outside policy limits, but this varies by policy.

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Occurrence vs Claims-Made Coverage

General liability policies are typically written on an occurrence basis:

• Occurrence-Based Coverage
  Covers incidents that occur during the policy period, regardless of when the claim is filed.

This structure provides long-term protection for past operations and is a key feature of GL coverage.

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What General Liability Insurance Typically Does Not Cover

Common exclusions include:

• Professional errors or advice (covered by professional liability)
• Employee injuries (covered by workers’ compensation)
• Damage to your own property
• Intentional acts or fraud
• Contractual liability beyond defined terms
• Cyber incidents or data breaches

Understanding exclusions is essential, as GL is often assumed to be broader than it actually is.

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What Affects the Cost of General Liability Insurance?

Premiums are influenced by:

• Industry and business activities
• Annual revenue or payroll
• Location and premises exposure
• Claims history
• Coverage limits and deductibles
• Use of subcontractors or third parties

Higher-risk industries or customer-facing operations generally pay more.

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Policy Limits and Structure

General liability policies usually include:

• Per Occurrence Limit – Maximum paid per incident
• General Aggregate Limit – Maximum paid during the policy period
• Products-Completed Operations Aggregate – Separate limit for completed work claims

Choosing limits should reflect real exposure, not just contractual minimums.

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Smart Questions to Ask an Agent or Broker

When evaluating general liability insurance, consider asking:

• What business activities are explicitly covered or excluded?
• Are defense costs inside or outside policy limits?
• Do my contracts require specific limits or endorsements?
• How are subcontractors treated under this policy?
• How does this policy interact with umbrella insurance?

These questions help ensure coverage aligns with actual operations.

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When General Liability Insurance Makes Sense — and When It Might Not

General liability insurance makes sense if:

• Your business interacts with the public or client property
• You face potential bodily injury or property damage claims
• You sign contracts requiring liability coverage

It may be insufficient on its own if:

• Your primary risk is professional advice or services
• You handle sensitive data or technology systems
• You have significant product liability exposure

GL is foundational, but rarely comprehensive by itself.

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Cheat Sheet

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Key Takeaway

General liability insurance protects businesses from common third-party claims arising from everyday operations. While it forms the backbone of most commercial insurance programs, understanding its limits and exclusions is critical to building complete risk protection.