10 Must-Know Facts About General Liability Insurance for Small Businesses

General liability insurance – often called commercial general liability (CGL) or business liability insurance – is a key policy for small businesses offering financial protection against claims from third parties due to bodily injury, property damage, and specific personal or advertising injuries that may occur during regular business activities.

However, many business owners may not understand what it covers and doesn’t cover and the details, like exclusions and coverage limits, that general liability insurance entails. You don’t want to be caught off-guard if you need to file a claim and discover the claim is denied.

Here are 10 must-know facts about general liability insurance that every small business owner or self-employed professional should know to help them understand it better and ensure they’re adequately protected:

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1. What General Liability Insurance Covers

General liability insurance is designed to cover third-party bodily injuries and third-party property damage that occur on your business property or because of your organization’s operations.

It also includes coverage against allegations or accusations of defamation or false advertising, and tenant’s legal liability to cover the cost of repairing or replacing a third party’s property that you rent, lease, or occupy.

General liability insurance includes coverage for a business’s legal defence expenses if sued and compensatory damages awarded against a business or if a settlement is reached out of court.

General liability insurance is vital for businesses that:

• Have an office, store, or workspace that customers or delivery persons visit
• If you visit a customer’s office, business location, or home
• Have employees who work at locations outside your business premises

2. What General Liability Insurance Doesn’t Cover

For all that general liability insurance does cover, some common accidents or incidents can occur to a business owner that this type of insurance does not cover, including:

• Injuries to employees while on the job. General liability insurance covers injuries to customers, passersby, and visitors to your business premises or because of your company’s usual operations. Your provincial workers’ compensation board covers injuries to employees.
• Damage to property and inventory. General liability insurance pays for injuries or damages that occur to other people. It does not cover damages or losses to your business property, contents, and inventory. For instance, if a fire damages your store, electronics, and merchandise, commercial property insurance covers the repair or replacement of the damaged building, electronics, and inventory.
• Intentional, fraudulent, or criminal acts. If a business owner or employee commits a crime or intentionally inflicts damage or harm to property or an individual, general liability insurance won’t cover it. It’s only applicable to accidental or unexpected incidents.
• Professional mistakes, errors, or allegations of professional negligence. Professional liability insurance (aka errors and omissions insurance) covers claims related to making mistakes or incorrect advice that causes financial or physical harm to a customer, and allegations of professional negligence or failing to deliver a service as promised.
• Subcontractors may not be covered. Contractors and construction professionals who hire subcontractors for a specific project should not assume that their general liability policy automatically covers them. They may need to be included as additional insureds or carry their own liability insurance.

3. Product Liability Insurance May Be Included in a General Liability Policy

Product liability insurance may be automatically included in a general liability insurance policy, or it can be added if it isn’t.

Product liability insurance covers third-party bodily injuries or third-party property damage caused by any product you manufacture, distribute, or sell (including food).

4. General Liability Insurance Can Be Bundled With Other Policies

Business owners may save on annual premiums by bundling a general liability policy with other coverages.

For example, a business owner’s policy (BOP) features general liability, commercial property, and business interruption insurance. A BOP suits small business owners with relatively low risks and straightforward insurance requirements. 

5. There Are Policy Exclusions

All insurance policies include exclusions – provisions that remove coverage for certain risks, hazards, or events. Exclusions exist to help keep the cost of an annual premium low.

Knowing what a policy’s exclusions are can help avoid unpleasant surprises when filing a claim and help identify if you have gaps in coverage.

6. The Coverage Limits Matter

It’s critical to know what your general liability insurance policy’s coverage limit is. A coverage or policy limit is the maximum amount an insurer will pay to settle a claim during the policy’s period.

Most standard general liability policies include coverage limits of $1 million per occurrence. That sounds adequate, but if a business is involved in a lawsuit, that amount could be used up quickly, leaving the owner to cover anything beyond it.

Also, the coverage limit you have per claim or occurrence also has a total annual limit or aggregate. That means you could hit the coverage limit before the year ends, exposing your business.

You can increase your coverage limit or add commercial umbrella insurance to the policy to cover costs after the coverage limit has been exhausted.

7. General Liability Insurance Does Not Cover Cyber-Attacks and Data Breaches

Many business owners might be surprised to learn that general liability insurance does not cover the consequences of cyber-attacks or data breaches that compromise their businesses.

Cyber liability insurance is an affordable option to include in your overall policy. It covers your business’s incident response costs, legal advice, credit monitoring, repairs to damaged software systems, and restoring lost or corrupted data.

It also covers a business owner’s legal defence expenses if affected customers whose data was stolen or compromised in an attack on your company sue you. 

Given that cybercrime is an increasing threat to small business owners, it’s wise and necessary to have cyber liabiity coverage.

8. Legal Disputes and Breach of Contract Claims Are Not Covered

The contracts a business owner or independent professional signs with a customer, partner, or another vendor are not covered by general liability insurance if there’s a dispute or allegation of breach of contract.

If you typically sign many contracts with customers, include professional liability insurance or errors and omissions (E&O) insurance in your policy. It provides coverage for business owners embroiled in contractual-related disputes.

9. Home-Based Businesses Should Have General Liability Insurance

Did you know homeowner insurance is not designed to cover a home-based business? It typically doesn’t. If it does, the coverage limit may not be sufficient.

A 2024 Zensurance survey of small business owners found that 33.6% do not have business insurance, and 22.3% of those respondents said they don’t because they have homeowner insurance.

That’s a risky gamble to take. If a customer or visitor to your home-based business gets injured or your usual activities damage a neighbour’s property, homeowner insurance is unlikely to cover that claim. That makes general liability insurance critical for home-based businesses.

10. Accurate Record Keeping Is Essential for Claims

Maintaining accurate records of your business operations is absolutely critical not only for tax purposes but also if you need to file an insurance claim.

That’s because insurers will request receipts, contracts, detailed incident reports, and proof that you adhere to all industry regulations and safety codes.

For example, if a customer trips, falls, and is injured in your place of business and threatens legal action stating they tripped over loose floor tiles, but you had the flooring in your store or office replaced before the incident, your insurer will want to see the proof of that renovation.

If you don’t have those records, it could significantly slow the claims process.

Get Customized, Low-Cost General Liability Insurance Quickly – Here’s How

Getting the low-cost, customized general liability insurance your small business needs is quick and easy through Zensurance. We’re insurance experts, so you don’t have to be. Let our savvy, knowledgeable team help protect your finances.

Fill out our online application for a free quote in less than five minutes.

We’ll shop our partner network of over 50 insurers to find the right policy at the right price, tailor it to suit your requirements, answer your questions, and issue policy documents and a certificate of insurance in 48 hours or less.