Differences between general liability insurance and professional liability

Most company owners are aware that they need insurance to protect their business in case anything goes wrong ever. Insurance is a very useful thing to have, and people recognise this – it can give you funds when you need them most, such as during legal disputes, after accidental disasters, and to help provide compensation after there’s been a theft or some property damage. Without insurance money for these problems will be taken out of your own pocket, and sometimes the fee is so hefty for things that you could end up being bankrupt.

While people know insurance is important, not a lot recognise that there are various types of insurance that apply to businesses. Two of the most valuable types of insurance are general liability insurance and product liability insurance. Both can be very important for you based on the type of business you’re running, but it’s important to know that they are not the same. Here we’ve broken down what both types of insurances are at their core and highlighted some of the differences between them.

What is general liability insurance?

General liability insurance, like it says in its name, is a more general insurance that all businesses – regardless of what type, should have. Simply put, it is a broad insurance policy that protects your business from a large number of risks. It can also be termed as  CGL (Commercial General Liability Insurance) or Liability Insurance. 

Businesses may think they can save more money from not getting insurance in the first place, but it turns out to be a huge help in many cases of legal risks, including:

  • Third-party bodily injury (if someone gets injured on your property)
  • Third-party property damage (if you damage someone else’s property)
  • Reputational harm (if someone sues your business for libel or slander)
  • Advertising injury (if someone claims you’re hurting their business with your advertising)

These examples show that many times something you do is simply a mistake, so insurance is one of the most cost-efficient and effective ways to keep your business safe from unexpected costs.

What is professional liability insurance?

Professional liability insurance, also known as E&O (errors and omissions) insurance or indemnity insurance, is great for both small and large businesses offering expert advice and services. It protects your business if you are sued for your performance, even if you have not made a mistake: a customer could sue you for doing something you should not have done, or even not doing enough – a professional liability insurance policy could protect you by covering the cost to defend yourself, along with any settlement if need be.

Claims can vary, but there are three main categories that professional liability insurance will protect you from:

  • Inaccurate work (if you’ve made a mistake doing a client’s work that has ended up costing them)
  • Negligent services (if the work you’ve provided doesn’t live up to standards put in place by state laws or contractual obligations)
  • Undelivered results (for instance if your contract promised the client they would be getting more profit as a result of your service and they have not, your client has grounds to get the funds they expected to receive from you)

How are both insurances different from each other?

General liability and professional liability insurance both deal with separate liabilities – business owners are always at risk, and either policy may be required by client contracts for various reasons. But, there are two key differences between both types of insurances that mean you may need to purchase one or both, depending on your potential risks.

Both cover different risk exposures

Only general liability is able to protect your business from lawsuits over things like a visitor sustaining a physical injury on your property, just as only professional liability insurance can spare your business from the high costs of professional mistakes causing potential harm to a client’s business.

General liability covers physical damages, and professional liability insurance covers financial damages

A general liability policy can be great for construction professionals, manufacturers, retailers etc. This insurance can shield these types of businesses from lawsuits over something that physically harms someone.

On the other hand, businesses such as lawyers, accountants, or technology professionals should have professional liability insurance. This type of insurance concerns itself with lawsuits over financial losses, resulting from someone’s products or services. For instance, a consultant could give advice to a client, guaranteeing it would result in a huge financial gain. If this does not happen, or money is lost, though no one was injured and no property damaged, the client still has a right to file a lawsuit against the consultant, so this type of insurance is most definitely needed.

Pros and cons of professional liability insurance

  • There is no standard policy wording – you’ll need to read individual policies to ensure it fits your situation, which can be both an advantage and disadvantage. While it does mean you can find one catering to your specific needs, it can be a long and stressful process to find one.
  • A huge disadvantage is that the premium/cost is based mainly on factors outside of your control – such as the number of claims filed in your industry.
  • However to contrast this, there are ways to influence the cost, such as by training employees in a special course.
  • The biggest advantage of them all is of course the money you save if a claim is made – sometimes the cost of a lawsuit can be so high you are struck with bankruptcy.

Pros and cons of general liability insurance

  • Again, the biggest pro is that if a mistake is made, you will be prepared for the aftermath: risks are always present.
  • However, general liability insurance is a very basic insurance. For some claims, it might not be enough to get just this – while it is very helpful.
  • There is lots of flexibility in this insurance – all you have to do is choose which type is best for you.

TRUiC has a lot of useful key information about general liability insurance. To read more, visit this site.