One of the first types of insurance that you are encouraged to buy when you start a business is General Liability insurance. Everyone wants to know that you have it: contractors, landlords, even clients.
When you buy the coverage, what are you really getting? Based on the quote you received from your broker, you may think you know. However, there are some common misconceptions about liability insurance. Here are three things you didn’t know about General Liability.
There Are Limits
While there are some policies where payouts may be unlimited, General Liability insurance policies do have limits on how much they will pay out and when. Once the policy limit is exhausted, coverage ceases.
For example: a policy may have a $1,000,000 per occurrence limit and a $2,000,000 policy aggregate. What does that mean for your business?
- If the total of injuries or damages exceeds $1,000,000 in any one occurrence, that policy will only pay that $1,000,000. Anything beyond that must be paid out of pocket or picked up by an umbrella insurance policy, if there is one.
- The $2,000,000 aggregate is the absolute policy limit. Once the $2,000,000 limit is exhausted, the policy ceases to provide coverage. There is no reset on this limit, and further claims under the policy will be denied and become the responsibility of the insured.
The limits of coverage are selected by the insured during the quoting or renewal process, so you should discuss with your broker the limits that will be right for your company. An umbrella insurance policy can be an affordable way to extend coverage beyond the general liability policy limits.
There Is A Classification Limitation
When you complete an application for a General Liability insurance policy, the carrier requests information on what your company does and how you do it. The answers to these questions determine your business classification. The classification limitation on the policy says that only those classifications listed on the policy are covered.
Each classification is assigned a different rate based on the scope of work and the likelihood of claims arising from that work. For instance, there are several different classifications for plumbers, including those who work with propane and those who don’t. Each of these is rated differently.
It is important to discuss all aspects of your work with your insurance broker in order to be properly classified. If your broker doesn’t know that you do it, then you probably aren’t covered for it under your policy. You buy coverage to be there when something happens, so be sure you are purchasing the right coverage.
It Doesn’t Cover Your Financial Obligations
General Liability insurance covers primarily bodily injury (slip and fall) or property damage (to customer or client property). It does not cover any financial obligations of the insured with regard to job completion or things of that nature.
The best way to cover financial obligations is by purchasing a bond. There are many to choose from, including bid bonds and performance and payment bonds.
Unfortunately, a General Liability policy alone may not offer all of the coverage you need. It is important that you discuss the limits of liability, the types of work your company does, and any contracts you might sign to determine what other policies will be needed to protect your business.